A savings account that guarantees to hold a decent interest rate? Surely some mistake. By Nic Cicutti
VIRGIN DIRECT, the slayer of financial giants, the aggressive defender of investors everywhere, this week contented itself with launching a savings account that offers a decent rate of interest - and actually guarantees to hold it there.

Come again? The company's new instant access Deposit Account offers a rate of interest which is guaranteed never to be more than 1 per cent below the UK clearing bank base rate - at least until December 2001. Right now, that means a rate of 6.25 per cent gross.

In effect, Virgin, the great populariser of stockmarket "tracker" investments, is doing the same with savings accounts.

Other banks and building societies pay more, most notably Egg, the new telephone account from a Prudential subsidiary, which offers 8 per cent gross until the New Year. Others, including the big supermarket neo-banks, including Tesco Personal Finance, are offering up to 6.5 per cent on their instant access accounts, while Safeway is offering up to 6.75 per cent gross.

But what distinguishes Virgin's account from the others is that it does not require minimum investments of pounds 2,500, as in the case of Safeway, to qualify for the higher rate: pounds 1 will do. Moreover, the Virgin guarantee is timed to last longer than Egg's - rates with them will drop by 0.5 per cent in January 2000 irrespective of what happens to base rates.

Virgin Direct's "tracker" approach to savings accounts, while worthy, includes an element of hype. By comparing itself to branch-based bank and building society accounts it aims to stand out more sharply. In fact, when set against supermarket and life company rivals which also offer telephone-based instant access, the company appears good, but not brilliant.

The company rightly points to the fact that while more than two thirds of people have a branch-based deposit account, up to half of them don't know what rate of interest they are receiving.

Almost nine out of 10 can't be bothered to shop around for the best rate on a monthly basis and 85 per cent say they haven't done so in the past five years. Only 7 per cent do so every three years.

For the vast majority, then, a good deal which is guaranteed may be better than a fantastic one which is not. Although after 2001 even Virgin only promises to "aim" to pay 1 per cent below base rates. If it can't deliver on this, it will give savers three months' notice.

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