Virgin Money launches new Cash ISA paying 'excellent' 5.05% interest rate

Virgin money bank sign

Virgin Money has launched a new Cash ISA with a 5.05 percent interest rate, earning an “excellent” Moneyfactscompare rating.

The interest rate, currently leading the sector, is fixed for a one-year term.

Fixed interest rate accounts can offer certainty to saving, as they enable customers to lock in the rate offered at the start of the term.

Commenting on the deal, Caitlyn Eastell, a spokesperson at Moneyfactscompare.co.uk, said: “Virgin Money has launched a new one-year fixed rate cash ISA.

“The deal pays a rate of 5.05 percent gross and may appeal to savers who want to utilise their ISA allowance and are happy to lock their cash away for a year, however, earlier access can be granted subject to a 60-day loss of interest penalty.

Woman smiling while online banking

“The account can be set up with no minimum deposit, following certain opening criteria. Overall, this deal earns an Excellent Moneyfacts product rating.”

Interest is calculated daily on the balance and paid to the account at the end of the fixed term.

Savers must be UK residents aged 18 and over and have a current account with Virgin Money opened on or after December 4, 2019. Alternatively, they must have originally opened their current account with Clydesdale Bank, Yorkshire Bank, or B, such as a Signature Current Account.

But while Virgin Money may be offering the top rate, competition doesn’t fall too far behind. Punjab National Bank (International) Limited’s Fixed Rate Cash ISA places just behind with an Annual Equivalent Rate (AER) of 4.8 percent.

A minimum investment deposit of £1,000 is required to get started, interest is applied on maturity, and early access is permitted on closure with 30 days’ notice, and no interest will be paid.

Shawbrook Bank is also offering a competitive rate of 4.71 percent with its One Year Fixed Rate Cash ISA Bond (Issue 93).

Savers need a minimum deposit of £1,000 to launch the account and interest is paid on the anniversary. Earlier access is subject to 90 days’ loss of interest.

Alice Haine, personal finance analyst at Bestinvest by wealth manager Evelyn Partners, said: “Your ISA allowance for the new tax year remains at £20,000 despite all the hype about the additional £5,000 British ISA, which is still under consultation and is unlikely to come into force until the next tax year at the earliest.

“Remember, the ISA allowance is a use-it-or-lose-it allowance, and while savers have until midnight on April 5, 2025, to utilise it, getting ahead can pay off handsomely.”

Calculations from Bestinvest found someone who had consistently invested their full ISA allowance at the very start of the tax year since the inception of ISAs will be significantly better off in comparison to a saver who had waited until the final day of the tax year, as assets have longer to take advantage of the compounding effect.

Ms Haine said: “Someone wanting to maximise their ISA allowance in full could set up a monthly direct debit of £1,666, which adds up to just under £20,000 over the course of 12 months.

“Investing on a monthly basis takes advantage of pound-cost averaging, so rather than investing a lump sum at a single price point, investors can buy smaller amounts at regular intervals no matter what the price is at the time cushioning the effects of volatility over the short- to medium-term.”

Ms Haine noted: “ISA rules have changed this tax year offering greater flexibility. Savers can now subscribe to multiple ISAs of the same type and make partial ISA transfers between different providers.

“The requirement for an investor to resubscribe to their ISA – if their contributions lapsed in the previous tax year – is also no longer mandatory.”