Have just been setting up some savings accounts. I figured its a good place to put some money until I know what to do with it (and not have it being eaten by inflation). My question is about how they work. Specifically, virgin money is offering a 6.75% initial rate followed by 5.35%. UBank is offering 6.5% initial followed by 6.0%. How is it that they can afford to pay these kind of rates on what is effectively a demand account? 6.75% blows term deposits (which are effectively loans to the bank) out of the water, given that I could just park the money there for the initial 4month period and withdraw it at any time.
So my main question is, what does Virgin Money then do with the money I deposit, such that it manages to achieve greater than 6.75% returns, whilst still being covered by a government guarantee?