Should I move all my savings to offset my mortgage?

HelpMeMove

Hi,

I have a 5yr fixed offset mortgage with First Direct at 4.99%. I have total savings of £70k which are divided over a few accounts (ICICI HiSave and Natwest e-savings,) the interest is around 3% in both.

Should I move all my savings into my FD savings account to offset my mortgage? It's a joint mortgage and accounts so will I be protected up to £100k?

Thanks in advance.

Reaper

I would BUT you need to be aware that if the bank collapsed (HSBC/FD are one of the stronger ones) and they didn't sell your mortagage on to somebody else (the most likely outcome in my opinion) then they would deduct your savings from the mortgage. Only if you had savings left after that would they pay compensation - up to £100k.

So if that possibility worries you, however unlikely, you could leave a little emergency money in a savings account that isn't with HSBC or FD.

gozomark

are there any limits to the amount that can be offset ?

HelpMeMove

Thanks guys.

I don't know if there are any limits, I will have to look into it. My borrowed amount was £300k last year.

Pssst

Yes you should as you would be financially better off.

whu

There is no limit but only the amount of the mortgage will be offset - ie if the mortgage is £100,000 and you have savings off £110,000 in the offset account only £100,000 will be offset
BTW I think you should put the money in the offset but take into account the points suggested by Reaper

dizzie

Yep - I agree with Reaper. First check out that you get the same "notional" interest on your offset savigns as on your mortgage (I only say this because I have seen some offsets where it doesn't look that simple). In other words, if you have a mortage for £100k at 4.99% and put £50K savings in the offset account, that should mean that you are only paying your 4.99% interest on the difference between the two sums (i.e. in this case £50K). Check also that they calculate the interest on a daily basis based on what is in your accounts (which I think most do now)

The above all being okay then you should be much better off with your savings in an offset. I've done a very quick calculation:

(i) Keeping £70k in an account earning 3% for one year is going to earn you £2,100 gross (£1,680 after tax if you are a basic rate taxpayer; £1,260 if you are paying tax at the higher rate)

(ii) Putting £70k in an offset account for a year (which offsets your mortage at a rate of 4.99% saves you £3,493 over the year...that's over double the amount of interest you'd earn as a basic rate taxpayer!

As Reaper says, although you would be fully protected by FSCS in the event of bank failure, what I think would be likely to happen is that they'd subtract your savings from your mortgage amount leaving you with a smaller mortgage debt to repay. If that worries you (the HSBC looks like one of the stronger banks to me), then maybe keep a few thousand in a different accoutn for flexibility's sake.