The move to buy Church House comes two years after the company failed to win control of Northern Rock.
Virgin Money will pay £12.3m for the bank while pumping in a further £37.3m of capital into the business.
Virgin Money founder Sir Richard Branson said: "The Church House Trust business offers us a strong platform for growth.
"Virgin Money aims to bring simplicity to the UK banking market which has traditionally been a complex sector."
Virgin Money offers a series of financial products including credit cards, insurance and pensions.
Acquiring Church House Trust will mean it can take deposits from savers and offer mortgages.
The Financial Services Authority has given the deal its approval.
Church House, based in Yeovil , Somerset, was founded in 1987.
For the financial year ended 31 December 2008 the bank, in which the Cayzer Trust is a major shareholder, reported operating income of £4.05m.