How good is Virgin Money’s new 2.25% regular savings account?
Virgin Money has launched a new regular savings account, offering flexible deposits and access with 2.25% interest and a Premium Bond-style bonus system offering the chance to win wine, holidays and more.
Unlike most regular savers it’s not a fixed-term account, but will instead mature on 20 October 2017, regardless of when the account is opened.
Accounts can be opened with just £1, and customers can save up to £250 each month. Plus, anyone can open an account – you don’t need to be an existing Virgin Money customer to get it.
Savers are also free to skip a month of making deposits without being penalised, but they won’t be able to make up any shortfall in their savings in later months.
At first glance, the interest rate can be beaten. If you have a current account account with First Direct, HSBC or M&S Bank you’ll earn 6% interest for a year with their regular savers, providing you don’t need early access to your money.
So on the maximum £250 monthly deposit over 12 months, savers would earn £31 interest with Virgin Money, £53 less than they’d get from one of these market-leading accounts.
If you need access to your money within the first year, consider Nationwide’s account, which pays 5% AER. Again, that’s only available to existing customers, though it allows flexible access and won’t punish savers if they miss a deposit.
Alternatively, Leeds Building Society pays 2.3% AER, narrowly ahead of Virgin Money, but with more stringent withdrawal conditions; you’ve got to save between £50 and £250 a month, and you’re limited to a single withdrawal each year. Breach these rules and the rate will plummet to 0.5% AER.
But savers shouldn’t discount the Virgin Money deal immediately as the account has a few benefits over the top paying regular saving accounts.
Firstly, savers are free to make unlimited withdrawals from their account, and won’t be penalised if they skip a payment either. HSBC and First Direct on the other hand will close your account if you make a withdrawal or miss a monthly payment. Even just a £10 withdrawal from either of these accounts during the first 12 months would lead to the account being closed and the rate being slashed to a paltry 0.05%, practically wiping out all of your interest.
Secondly, the Virgin Money account is available to anyone. The top regular savings deals are generally only available to existing customers, as is the case with First Direct, HSBC, and Nationwide.
Thirdly, though least importantly, there’s the prize draw. It is a nice perk, though it shouldn’t drive your decision. Virgin Money will run a quarterly raffle, offering 10 tickets to each account holder. Savers’ chances of winning are boosted with regular deposits - you’ll gain an extra 10 entries for each month you save.
The prize draw is reset quarterly, so savers can earn up to 40 entries to each draw. Prizes include a Virgin Holiday, cases of wine, or offers from Virgin Media and Virgin Experience Days.
For people looking to start saving this account also pays a better rate than you’ll currently get from an instant access account, though it may also be worth considering a high interest current account where you can earn up to 5%.
* HSBC offers 6% AER to people with a Premier or Advance account, or 4% AER to customers with other current accounts.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.