Virgin launches savings account paying Flying Miles instead of cash interest - but will it take off?

Virgin Money has today launched a one-year fixed savings account offering Flying Club Miles instead of cash interest, though most will be better off sticking with traditional savings.

The new Virgin Atlantic 1 Year Flying Club Savings Account is unique as it rewards savers in the form of Virgin Flying Club Miles rather than cash interest.

Collectors of Flying Club Miles can use them on reward flights, upgrades and companion tickets, but a cash reward for your savings is likely to be better value unless you're an avid collector.

For more ways to collect air miles see our guide.

How does the account work?

To collect Flying Club Miles with the savings account, you'll have to lock away your cash for a year and in return you'll earn 1,400 miles for every £1,000 saved.

So if you're able and willing to lock away £15,000 for a year, you could earn 21,000 miles - enough for a return flight to New York. However, bear in in mind that taxes, fees and carrier-imposed surcharges are still payable, meaning a 'free' Virgin Atlantic flight to New York could still end up costing you a few hundred pounds.

To open an account you'll need a Virgin Atlantic Flying Club membership number, though if you aren't already a member you can join the club for free.

While the account can be opened with a little as £1, you only have a 'limited window' to make your total deposit once you've opened the account. Withdrawals are not permitted during the fixed term.

At the end of 12 months, any earned miles will be credited to your Flying Club account within five working days of the maturity date. Following this, the account will no longer earn you any miles.

Is the account any good?

Virgin Money claims that the one year interest rate is equivalent to 1.19% AER or a higher 2.1% AER if you compare it to buying Virgin Flying Club Miles direct from Virgin Atlantic. While this quoted 2.1% 'comparison rate' looks sky high at first glance, buying Flying Club Miles from Virgin in cash is an expensive way to obtain miles, so it's probably best to take it with a pinch of salt.

In terms of other fixed savings account available, the top one-year fix is from app-only Atom Bank which pays 2.05% AER - blowing the Virgin account out of the water. Atom's account can be opened with £50 and cash interest is paid annually or monthly.

Comparing Atom directly to Virgin, if you saved £15,000 for a year you'd earn a little over £300 in interest. We found a Virgin Atlantic economy return flight to New York in September for £459, so when you factor in that you'd still have to pay taxes and fees on flights using your air miles, it's likely cash interest will be your best option.

Alternatively, if you don't want to open an account using an app, Secure Trust Bank pays 1.88% AER for one year - again, beating Virgin's 1.19% equivalent interest rate. For more information, see our fixed savings guide.

Other ways to earn Virgin air miles

There are other ways to earn Flying Club Miles where you don't have to lock away your cash for a year:

• The fee-free Virgin Atlantic Reward credit card (eligibility calc / apply) gives 5,000 bonus Virgin Flying Club miles if you make a purchase of any amount within 90 days. It also gives 0.75 miles for every £1 spent on the card. Repay IN FULL to avoid 22.9% rep APR.

• The £160 a year The Reward+ card (eligibility calc / apply) offers a higher 15,000 bonus miles on your first purchase within 90 days, and gives double the amount of ongoing points – 1.5 miles for every £1 spent. Rep APR is 63.9% (incl fee) so repay IN FULL.

For more on these cards and their rewards, plus information about other airline reward cards, see our Airline Credit Cards guide.

How many Virgin Flying Club Miles do I need?

Unsurprisingly, the amount of Virgin Flying Club miles you need depends on your destination. For a 'free' return flight, you'd need at least 20,000 miles for a return economy flight to either New York or Dubai, plus taxes and charges, which could cost roughly £250.

However if you've less than this, you can spend miles in multiples of 3,000 using Virgin's Miles Plus Money scheme where you can part-pay for flights in miles and cash.

Here's a snapshot of the cost of off-peak Virgin Atlantic flight prices in Flying Club Miles from London Heathrow:

Flight prices (in miles) for off-peak returns (1)

What does Virgin Money say?

Rhian Emmanuel, director of savings at Virgin Money said: "The new Flying Club Savings account is the first of its kind and is a brilliant option for savers looking to gain more value from their cash deposits, where customers can earn 1,400 Flying Club miles for every £1,000 they invest.

"We are delighted to be able to offer such an innovative new account and to further expand our partnership with Virgin Atlantic."