16th January 2015
The launch of pensioner bonds has prompted long-awaited competition in the savings market. While pensioners scrambled to get their hands on the 65+ Guaranteed Growth Bonds paying 2.8% for one year and 4% for three year, from National Savings & Investments (NS&I), Virgin Money increased the rate on its one-year ISA.
Savers putting money away with Virgin will now receive 1.7% interest on their ISA, up from 1.65%. As ISAs are not taxable, whereas the pensioner bonds are, the Virgin rate is a better option for higher rate taxpayers.
Those saving £10,000 into the Virgin ISA would accrues interest of £170 a year tax-free while one year in the NS&I bond would accrue interest of £280 but higher rate taxpayers would only receive £168 of it.
The bond is still a better bet for basic rate taxpayers paying 20% who receive £224 of the interest accrued. Virgin has not increased its three-year ISA rates to compete with the bonds.
Anthony Mooney, financial services director at Virgin Money, said: ‘Our new savings products offer good value and choice to our customers, no matter how they wish to invest their money.
‘Our range offers customers the same competitive rates for ISAs and fixed rate bonds, giving ISA savers the full benefit of tax efficiency. WE also offer exactly the same rate through all channels, so customers can also choose how they wish to operate their account without detriment to rate.’