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New savings account pays air miles instead of cash interest – is it a good deal?

Find out if you’d get further with a different account

New savings account pays air miles instead of cash interest – is it a good deal?

A tie-up between Virgin Money and airline Virgin Atlantic has seen the launch of a savings account that doesn’t pay cash interest, but instead pays out points for free flights, cabin upgrades and companion tickets.

Virgin Atlantic’s 1 Year Flying Club Savings Account pays points for its Flying Club Miles currency, which might sound like a great option if you’re saving for your next holiday.

But could finding a higher interest account and cheaper flights get you a better break?

Which? has looked into the deal to find out whether you should check in.

How does the account work?

This is a one-year fixed-rate savings account, so you’ll have to choose how much money you want to save, and lock it away for a year.

You can save between £1 and £1m, and each customer can save up to a total of £2m with Virgin Money across all accounts held with the bank.

To open the account, you’ll need to have a Virgin Atlantic Flying Club membership number. You’ll have to join Virgin’s scheme, which is free to do.

At the end of the term you’ll be rewarded with 1,400 miles for every £1,000 saved, and these miles can be spent on Virgin Atlantic flights.

Is it easy to spend the points I’ve earned?

There are a few caveats you should be aware of when spending Flying Club points.

For example, you may not always be able to use your points towards a flight and pay the remainder in cash. You can only combine cash and miles you’ve saved where expressly stated.

So, for some journeys, you have to wait until you have the full number of points to buy a reward flight.

The number of reward seats on each flight are limited, and can fill up quickly – especially on popular dates, such as weekends – so you may have to be flexible with when you want to fly, and book your seats in plenty of time.

Also bear in mind that mileage varies depending on season and route, and you’ll also have to pay taxes, fees and carrier surcharges on top of the points.

Could I get a better rate elsewhere?

In terms of the straight amount of interest you receive, yes you can. You earn a fixed rate of interest at 1.19% AER on money saved, which is converted to miles after the year term is up.

The table below shows how this rate compares to the one-year fixed-rate accounts currently offering the top rates.

Account AER Minimum initial deposit
Atom Bank 1 Year Fixed Saver 2.05% £50
Gatehouse Bank 1 Year Fixed Term Deposit 2% (EPR) £1,000
OakNorth 12 Month Fixed Term Deposit 1.96% £1,000
Wesleyan Bank 1 Year Fixed Rate Deposit Account 1.88% £1,000
Zenith Bank 1 Year Fixed Term Deposit Account 1.88% £1,000

Source: Which? Money Compare. Correct July 2018.

All of these accounts comfortably beat the 1.19% offered by Virgin Money, though the majority of them require a higher initial deposit of £1,000.

However, the interest rate is skewed slightly when it’s converted to Flying Club miles, as – compared to buying the same amount of miles direct from Virgin Atlantic – it actually means you’re given the equivalent of 2.1% AER.

Under these terms, the account would be market leading. But you are, of course, limited to only being able to spend the money on Virgin Atlantic flights.

Which? Money Compare allows you look at hundreds of providers and compare savings accounts to find the best deal. You can also use the tool below to work which type of savings account might be best for you.

How far can I travel with a Virgin Atlantic savings account?

In order to claim a reward flight – ie a flight you get for free with your Flying Club points – you’ll need to save a hefty amount.

The table below shows how many points you need to fly on Virgin Atlantic’s main routes in economy class during off-peak seasons, and how much you’d have to save to earn those points.

Route Economy Classic return: points needed (standard season)* Amount you’d need to save
India and UAE 20,000 £14,287
North-east (Boston, Newark, New York JFK, Washington DC)
20,000 £14,287
Caribbean 20,000 £14,287
Midwest & South (Atlanta, Miami, Orlando)
25,000 £17,858
Mexico 25,000 £17,858
Africa, China and Hong Kong 25,000 £17,858
(Las Vegas, Los Angeles, San Francisco, Seattle)
30,000 £21,429

*Points needed for free reward flight before taxes and charges. Source: Virgin Atlantic

As the table suggests, you need to be able to put away a large chunk of money in order to earn enough interest points to buy a standard season flight.

As you’d expect, standard season avoids a lot of school holidays and the Christmas period – if you were looking to travel during peak season many of the points requirements double, meaning you’d need to save £28,571 for the one-year term to earn enough points to get an Economy Classic ticket to New York.

For the sake of an experiment, let’s say you have £15,000 to save for a year, and then you want to use this pot to take a trip from London to New York JFK from 10-15 September – during Standard season.

With the Virgin Atlantic savings account, you should qualify for free Economy Classic return flights, spending 20,000 points with 998 miles left over.

On the face of it, these ‘free’ flights sound great, but then there’s the additional taxes, fees and surcharges that need to be paid. In this case, these total £267.61 on taxes, which would eat into your original £15,000 you’ve saved.

Alternatively, if you were to choose the highest-paying one-year fixed-term account that pays interest in cash – currently this is Atom Bank’s 1 Year Fixed Saver, with 2.05% AER paid annually – you’d earn £307.50 on your £15,000 cash savings.

According to Skyscanner, you could book flights on the same dates – and still fly with Virgin Atlantic – for a total of £310.33 (with hand baggage only). This means you can pay for all but £2.83 of your flights with the interest you’ve earned.

That means you’d have £264.78 more than if you’d saved with the Virgin Atlantic account, which is a lot of New York bagels.

While these flights are based on prices for September 2018, they should be indicative of what you can expect to pay in future.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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