Gimmicks are rife in the world of money. From redundant free gifts and long-winded cashback deals to temporary bonuses, banks are relentless in their quest to doll up products.
And it’s against this sea of gimmicks that Virgin Money, the new owners of Northern Rock, is attempting to swim by launching two new ‘catch-free’ savings accounts.
But are they really the best destination for your cash?
[See also: Virgin is the only hope for Northern Rock]
Gimmick-free
The Virgin Easy-Access Saver and Easy-Access ISA both pay 2.85% AER and are fully easy access. The minimum deposit for both accounts is £1. The maximum balance for the Saver is £100,000, while you’ll be able to hold a balance of £2m in the ISA – transfers from other providers' ISAs are also allowed.
However, what really sets these accounts apart is the lack of bonus tagged onto the interest rate.
Most savings deals come with temporary bonuses – occasionally up to 95% of the headline interest rate. These usually drop off after 12 months, leaving you with a paltry return and forcing you to switch providers.
The new Virgin accounts have no such gimmick, meaning that your rate will not plummet after a year, although it is worth noting that the AER is variable, and hence could potentially be altered.
The accounts are being advertised on Northern Rock’s newly revamped website as well as the Virgin Money site. Savers can apply online, over the telephone or in Northern Rock branches – the interest rate doesn’t change.
Deposits stretching up to £85,000 are covered by Northern Rock’s banking licence with the Financial Services Compensation Scheme (FSCS). This could cause problems for customers who hold existing savings with the Rock, as all account deposits will be factored into the single £85,000 licence level.
So how do these clear and simple 2.85% deals stack up against other accounts currently on offer?
[Useful: The top-paying cash ISA deals]
Savings contenders
Savings wise, Virgin Money’s account falls well below the market leader: the Nationwide MySave Online Plus, an account that offers a 3.12% return. However, this deal does come with a host of catches. Firstly, the interest rate includes a bonus that drops off after 12 months leaving you with a paltry 1.51% rate. Secondly, the account isn’t truly easy access as you’re only allowed one free withdrawal each year. And thirdly, the minimum deposit level is £1,000.
ING Direct’s 3.10% account comes with fewer strings attached, but still includes a bonus that will send your rate crashing down to an insulting 0.50% after 12 months. The minimum deposit for this deal is £1 and you are able to make as many withdrawals as you like.
Santander also has a 3.10% truly easy access offering with a minimum deposit of £1. However again, the packaged bonus will see your return tumble to 0.50% after 12 months.
So as you can see, if you do opt for the Virgin account, you’ll be sacrificing short-term interest for long-term rate stability.
[Useful: Top-paying easy-access accounts]
ISA contenders
On the tax-free ISA side, Virgin Money is again beaten in the best-buy tables.
Nationwide come out on top once more with a 3.10% rate on its Online ISA issue 2. But there are hoops galore to jump through if you want to get hold of this account. The minimum deposit is set at a hefty £25,000 – you’ll only receive 2.75% for deposits of £1,000 or more and 0.25% below that. You’ll also need to be an existing customer to be eligible for the deal and from the 31 January 2013 your interest rate will drop to 1.00%. But on the plus, side the ISA does allow transfers in.
The AA is behind Nationwide with a 3.05% rate. But again, the ISA includes a bonus that will see your rate fall to 1.7% after 12 months. The minimum investment for this account is £500. However transfers in are not allowed.
The next best account, ING Direct’s 3% deal has a guaranteed rate for 12 months and a minimum deposit of £1. But like the AA account, transfers in are not allowed.
Indeed, framed against these catch-ridden ISAs, Virgin Money’s 2.85% easy access, transfer-allowing, low-minimum-deposit account starts to look like a sensible option.
Your take
Would you sacrifice higher interest rates for a ‘gimmick-free’ account?
Let us know using the comment box below.
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