How to compare interest rates?

TallGirl

Hi there
New on this board. I am currently trying to clear my mortgage and is currently set to do it 1st April 2010.

The mortgage is a Woolwich Offset that is charged at 1.25% interest calculated daily and we can borrow back at this amount too.

My question is would it be worth me opening ISA's (DH and Me £3600 x 2) this tax year borrowing the money from the offset and then pay it back to the mortgage over the next year.

As far as I understand it the best ISA is paying 2.54% at the moment so if I am paying 1.25% to borrow the money on my mortgage that should be worth it should it? Just about confused comparing the 2.54% APR with the 1.25% which is the daily amount charged.

We have no other savings as we have been concentrating on clearing the mortgage and I feel I should start our tax free savings this year rather than in April when we are mortgage free.

Thanks for any replies.

Lokolo

As what from I can understand, you are not charged 1.25% everyday. You are charged 1/365th of 1.25% everyday.

As with this, everyday, with savings, you get 1/365th of X% everyday (and in the case of the best ISA, means you will get 1/365th of 2.54%).

It would be worthwhile to put it in ISAs yes, but the profit may only be negible (1% of £3600 is £36, x2 is £72..., and thats over a year)

TallGirl

Thank you very much for the information. I am not too worried about the small profit I really just want to start using my ISA allowance this year rather than wait until next year and loose it.

I should think we would need to borrow the £7200 for 8 months so not that long really. Thanks again.