The best homes for your savings

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.

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.