Virgin Money has launched a new regular savings account with a market-leading 10.38 percent interest rate – but it might not garner the sizeable returns it may appear to.
The rate is fixed for 12 months and there is no minimum deposit for savers to get started. Up to £250 can be invested per month, meaning the maximum balance people can earn interest on in 12 months is £3,000.
Virgin Money says people can invest more money in the account if they want to, but they’ll only earn interest on up to £250 per month.
Regular savings accounts can be a good option for those looking to get into a savings habit, as these accounts typically offer higher interest rates and the terms generally encourage savers to pay money into the accounts monthly.
To launch the bumper-rate account, savers must be aged 16 and over and have a current account with Virgin Money opened on or after December 4, 2019.
Alternatively, customers with a current account originally opened with Clydesdale Bank or Yorkshire Bank, such as a Signature Current Account, are also eligible. Money can be withdrawn at any time, making it a good option for savers who need more flexibility.
Commenting on the deal, Rachel Springall, a finance expert at Moneyfactscompare.co.uk told Express.co.uk: “The new regular savings account from Virgin Money offers a tantalising rate and may well entice customers who want to kick start the savings habit.”
However, explaining a potential catch to the headline rate, Ms Springall pointed out: “As a regular saver, the 10 percent gross rate is applied on each contribution, so after 12 months of putting away £250 every month, savers would earn around £162 in interest in total.”
This means that by the end of the 12-month period, the estimated balance based on investing £250 a month would amount to £3,162.40, assuming an overall deposit of £3,000.
But unlike other regular savings accounts, Ms Springall said: “The rate is a fixed return throughout the 12-month account term. This account is market-leading and is exclusively available to existing current account customers, so that may disappoint those who are not looking to switch their current account.”
Ms Springall noted that savers who do not want to move their current account would be wise to compare the alternatives but “be aware” that they will be getting a lower rate of interest.
Ms Springall said: “As it stands the best rates are tied to current account customers or may be limited to those who need to visit a branch to open the account.”
While Virgin Money may be offering the top rate for regular savings accounts, the competition doesn’t fall too far behind.
Principality Building Society offers an Annual Equivalent Rate (AER) of eight percent. The term of the account runs for six months and up to £200 can be invested per month. The account can be opened with a minimum deposit of £1 and interest is paid on maturity.
The estimated balance after six months based on depositing £200 every calendar month with this rate currently stands at £1,227.53.
Online-based digital bank first direct is also offering a competitive AER of seven percent. The rate is fixed for 12 months and Britons can get started with just £25. Interest is calculated daily and paid on account maturity exactly one year after opening. Between £25 and £300 can be deposited per month in multiples of £5.
Withdrawals are not permitted throughout the 12-month term. In this event, the account will have to close and interest will be paid up to the closure date at the Savings Account variable rate instead.
The estimated balance after six months based on depositing £300 every calendar month with this rate currently stands at £3,736.50.
