Personal finance: Virgin has done it again

A sad ritual appears to be developing here. Every few months, this column reviews one of the growing number of products coming from the stable of Richard Branson's fledgling financial services empire, Virgin Direct. Each time, I end up praising the company's initiatives, albeit with some caveats.

This week, Virgin has teamed up with Royal Bank of Scotland and its main financial backer, the Australian insurance giant AMP, to come up with a lifetime mortgage/savings account called One. Is this initiative also worth two-and-a-half cheers? I'm afraid so.

What Virgin has done is to start a debate on exactly what constitutes a bank account. Until now, the typical system has involved an account through which all sorts of other bills, standing orders and debits are paid, including mortgages.

Virgin's idea is that you borrow money to buy a house and for your living expenses from its One account and pay in your wages each month in the expectation that the repayments you make each month will cancel out the debt before you retire.

The package comes with bells and whistles: there is a 24-hour telephone banking service, you receive a debit card and cheque book andmonthly statements will tell you how much you have paid off. Interest on the card is set at the mortgage rate, currently a maximum of 8.9 per cent, still much cheaper than virtually any other card.

Moreover, the amount you pay in is immediately credited against what you owe, reducing debt that much faster. Virgin calculates that the total saving for some people could run into tens of thousands of pounds over 25 years. Wonderful.

Yet for many people, having a separate mortgage account into which you pay a monthly amount is an essential discipline needed if the loan is to be paid off on time.

Virgin says there are many people who chafe at this "discipline". This is true. There are also many others who, were it not for the fact that they have to account to a lender each month, might let their payments dip. If you are one of these people, Virgin's One is not for you.

Moreover, interest rates offered to those who move into credit after a few years is a fairly measly 5 per cent gross. Here, Virgin says that as the minimum borrowing period is five years, there is plenty of time before this will need to be paid, by which time its rates may have risen. So, two cheers for Virgin then. Oh hell, two-and-a half.

Last week, I said some scathing things about NatWest Life's uncompetitive pension products. Say what you like about the outfit, but they have efficient PRs. In the pained tones reserved for personal finance journalists I was informed that NatWest Life's charges on its products are only slightly worse than average.

Given that charges on pensions are generally a rip-off, I'm not sure quite what point they are trying to make. But if they want me to accept that NatWest Life is barely average, I'm happy to do so.