Alliance&Leicester 10%pa v Tax Free (Isa etc)

If you put £250 per month into a 10% reg saver then your overal interest earnt for the year will be the average of 10% and the rate wherever the money came from. So if you start with £3K in a 5% instant access account, your total interest over the year will be 7.5% of £3K, minus tax, so it'll be around 6% of £3K. In a 5% ISA it'll be 5%.

+ these questions have also been discussed inthe fairly recent thread
A&L and Barclays 10% savings acc
I agree with other respondents AL is the better if you can't do both.

Especially as you want to use the savings to pay off part of mortgage periodically. I hope you have no early repayment penalties. It appears to me that it would be best to leave your AL savings to run for 12 months after which they close it and pay your money into another type of account. It is not, so far as I can make out, one of those accounts that includes a bonus which would be sacrificed if you cashed it in early but they do not allow withdrawals before 12 mth. ; if you wanted to get some of the money back for the mortgage after say 6mth you have to close the AL account and there is then a dead period of 3 months before they let you open a new one. It is in your interest to keep the money there for 12 mth. because your mortgage is not, I hope, as much as 10%, so your money is earning more than and equivalent part of your m'gage is costing you. Then after 12 mth. use the saved money to pay of a bit of m'gage. while you start a new savings acct. (if still on offer in a year's time).