Savings Account vs Offset Mortgage Account

barnesy1977

Hi there. I wondered if anybody could offer some advice to me please.

I have an Offset mortgage with First Direct with a fixed rate of 2.99% for 2 years (23 months remaining). It's an interest only mortgage, but I am using it as a repayment mortgage by overpaying each month. My interest only payments would be £280pcm, whereas I am paying £530pcm to clear it in 25 years. My mortgage is £112,000

Attached to the mortgage is a First Direct '1st' Current Account.

I don't know too much about how offset mortgages work etc, but I'm aware that for example, if my current account has a balance of £12,000, I will only get charged interest on £100,000.

I have say £12,000 in savings and so I am wondering whether I am better off putting this money into my First Direct account and therefore paying interest on my mortgage for just £100,000. Or whether I should leave my savings where it is - which is a Cahoot Savings account with an interest rate of 0.5%.

Any advice would be appreciated.
Many thanks

mrmajika

Open a savings account with FD, link it to your FD mortgage and put the £12k in there. It means that it still sits in a separate pot from your current account, but still offsets your mortgage.

Only certain FD savings accounts can be offset, give them a phone or check online which ones they are.

Peelerfart

Might also be worth moving £3.6K into an ISA .You should get better than 2.99%,but definately move the money from Cahoot, 0.5% is pretty bleak

gil13

Hi, definately move your 12k out of cahoot at 0.5% and offset it against the mortgage, watch the direction of interest rates going forward as to whether you switch back to a savings account paying more than 3%. Keep paying the same amount into your mortgage you are then effectively overpaying which will help reduce the term. Re-evaluate in 23 months.

ManicMum

if you are paying more interest on your mortgage get rid of that first. If savings higher, then stash money there. As others say, try an ISA or there are some savings accounts paying more that 2.99%.

Thrugelmir

If the money is deposited outside of an ISA you will need to achieve a rate of over 3.75% gross to net over 2.99% after tax. Thats if you are a basic rate taxpayer.

If you can't beat this rate with an instant access account use the offset facility.