Virgin Money has today launched a savings account which offers its interest in air miles with the Virgin Atlantic airline.
The bank hopes to lure savers into the one-year fix which offers 1,400 Flying Club miles for each £1,000 saved.
These can then be exchanged for a full range of Virgin Atlantic rewards, such as flights and cabin upgrades.
Flying Club: Savers are being given a different option – interest paid in air miles to use on Virgin Atlantic
However, the fixed interest is the equivalent of 1.19 per cent, far lower than the top deal currently offered in the independent This is Money savings tables, which is 2.05 per cent from Atom Bank.
Virgin Bank, which is currently subject to takeover talks from Clydesdale and Yorkshire Bank, says that a customer saving £15,000 would earn enough Flying Club miles for a return economy classic reward flight to New York in off-peak season.
It claims that by comparison, a customer would need a rate equivalent to 2.1 per cent in order to earn enough interest to be able to buy the same number of miles direct from Virgin Atlantic.
It is worth pointing out that flight rewards do not include any applicable taxes, fees, charges or surcharges imposed by any government authority, other authority or Virgin Atlantic.
For a return to New York, Air Passenger Duty on an economy flight is £78. There tend to be other fees on top of this, that can bring the total to more than £200. You will also need an extra 10,000 points if you wish to take a companion with you to the US city and pay their APD too.
If you compare £15,000 with the top one-year fix, you’d get £310 interest after 12 months. Sums worked out using our lump sum savings calculator.
With this Virgin Money account, you’d end up with 21,000 Flying Club miles but no cash interest after a year – instead, the £15,000 goes into its variable-rate interest account, unless you move it elsewhere.
The Virgin accounts can only be opened online, with a minimum of £1 and maximum of £1million. Only at the point of maturity is interest converted into the miles.
It also says that for 20,000 reward points, customers could fly to UAE, India, other eastern US destinations and the Caribbean, off-peak economy.
USA Midwest and South, Mexico and Africa, China and Hong Kong come in at 25,000 points, with USA West is 30,000. It doesn’t fly short-haul.
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To fly in peak season, the points needed roughly double. You can see a full list on the Virgin Atlantic miles calculator.
Flying Club miles expire if there is no activity on the account for 36 months. Air France and KLM will also be added to the list of carriers early next year on the Virgin Flying Club.
For tax purposes, Virgin Money says that interest earned at the maturity date should be included in any tax returns and will count towards any personal savings allowance, which may put off higher taxpayers.
Under the Personal Saving Allowance, higher taxpayers get their first £500 of savings interest tax-free, and basic-rate taxpayers £1,000.
In April, Virgin Money also unveiled two new credit cards that allow customers to collect miles for the first time.
The two cards, Reward and Reward Plus, offer points for every £1 spent which can then be converted into flights.
The Reward card has no annual fee and gives customers 0.75 Flying Club miles for every £1 spent. The Reward Plus version has a £160 annual fee but gives a bumper 1.5 miles for each £1 spent.
Furthermore, the non-fee option offers 5,000 bonus miles with the first card purchase within 90 days of account opening while the Reward Plus card gives 15,000 miles.
However, as This is Money regularly points out on these types of card, you have to play by the rules or you could be stung with fees and interest.
It is imperative that you pay off the card as you go along – it is not wise to spend on it and leave debit outstanding.
For example, the representative APR on the Reward Plus card is 63.9 per cent and on the Reward card 22.9 per cent.
Furthermore, the purchase rate is 22.9 per cent and while there is a 0 per cent balance transfer offer for the first six months, it comes with a three per cent fee to do it.
These charges are high and can eat into any potential rewards – or surpass them quickly – if you do not stay on top of it.
Is it worth it?
For someone considering flying to one of the destinations covered by Virgin Atlantic anyway, and sick of the pittance available from savings accounts, this may be a good option.
However there are a lot of variables to consider, for example whether you will have enough miles to travel at the times you want to go – or if you can be flexible enough to go when there are eligible flights available.
You also need to be sure that your desired destination is covered by Virgin Atlantic or one of its partner airlines.
And finally, if you can afford to be flexible and are happy with a budget option – which often charge for add ons including luggage and inflight food – airlines such as Norwegian Air sometimes offer flights that at times are not much more than the cost of taxes charged by airlines such as Virgin Atlantic, and don’t require the additional fuss of opening the savings account and accruing points.
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Rob Burgess, founder of website Head for Points, says: ‘This is the first time in a decade that we have seen a UK savings account which pays interest in frequent flyer miles.
‘It is important that savers look beyond the gimmicks to decide whether this is a good deal or not.
‘What Virgin Money is actually doing is paying you 1.19 per cent interest in cash and then immediately taking that cash away and buying you frequent flyer miles at 0.85p each.
‘Having redeemed millions of frequent flyer miles over the last 20 years, I am happy to value Virgin Atlantic miles at 1p each – and that is conservative.
‘On this basis, receiving miles instead of cash interest will be a good deal for many people.
‘Because Virgin Atlantic only flies long-haul, however, you need to be generating a large amount of miles to get full value for them – a Business Class return flight to New York would be 95,000 miles plus taxes for example.
‘Unless you are depositing substantial sums, you are unlikely to earn enough miles just from the savings account to get a “free” flight.
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