Virgin Money managed to garner plenty of coverage with the launch of its latest cash Isas, but investors hoping to earn a decent return on their savings once more will be disappointed.
Virgin's new interest rates only equal or marginally exceed those from firms with less of a well-oiled publicity machine. In many cases, investors could do better by opting for non-Isa accounts.
Virgin's new one-year fixed-rate Isa carries an annual effective rate (AER) of 1.91%. That's only fractionally better than the 1.9% rate available from Bath Building Society and the Post Office, although neither of these offer online access.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The best alternative for those who prefer to manage their money over the internet is 1.85%, available from small business-focused bank Aldermore. The three-year fixed rate Isa from Virgin pays a 2.4% AER, putting it equal with Bank of Scotland and slightly ahead of Skipton Building Society and Lloyds Bank, both on 2.3%.
Meanwhile, Virgin's five-year Isa offers an AER of 3%, equalled by Skipton and almost matched by accounts that pay 2.9% from Principality Building Society and Newcastle Building Society.
All of those Isa rates can be slightly bettered by opting for non-Isa fixed rate savings bonds from various providers, including Virgin Money. But on an after-tax basis, only non-taxpayers will earn more from these taxable accounts than from Isas.
In any case, it's questionable whether locking your money up for so long at these low rates makes sense either inside or outside an Isa, given the alternatives.
Santander, Lloyds, Bank of Scotland and TSB all offer current accounts paying 3% interest, subject to balance limits and monthly funding requirements. On an after-tax basis, these beat the best one- and three-year Isas for basic-rate taxpayers.
The immediate disadvantage is that you risk rates falling further, while not filling your Isa allowance this year could be less tax-efficient in the long term when rates eventually rise.
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
-
What does Rachel Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
