Flexible Mortgage savings pot vs Mini Cash ISA

bishbash_3

I have opened an Abbey flexible mortgage which allows me to offset the interest on my mortgage by the money I have paced in its saving pot.
I have already transferred several thousand pounds that I had in an online bank account to the savings pot. As I was paying 40% tax on the interest in this bank account, then moving the money into the savings pot was a great way to offset the interest on the mortgage and avoid paying tax.

I also have several mini cash ISAs which of course do not attract any tax on their interest. The ISAs are paying me at a rate of 4.6%, whilst the Abbey mortgage is at 4.99%.

Surely, I would be better off transferring my ISA funds to the Abbey flexible mortgage and placing them in my savings pot? When Abbey calculate my monthly payment they only calculate the interest based on my outstanding balance minus what is in my savings pot. My normal monthly payment to the mortgage account always remains the same. The money I have saved by offsetting my mortgage then goes back into the savings pot.

So my question, is wouldn’t I earn more interest by offsetting my mortgage by this method, as 4.99% is better than 4.6%? This was a bit of a no brainer for my non-ISA funds as I was having to pay 40% on the interest. However, I’m not so sure of the advantage of moving money from my cash Mini ISAs to the savings pot.

dunstonh

The ISAs are far more beneficial for you in the long run. Although cash ISAs being less so than equity ISAs.

ISAs are a use them or lose them allowance and are only guranteed to have contributions allowed until 2010. What comes after that we dont know. So, if you dont put money into them now, you may not be able to later and even if you can, you may be forever running out of allowances (i.e. £3k not enough and 4k wasted if you dont use it).

jamesd

See the best ISA guide and you'll find that for new deposits only you can get 5.05% from NS&I but you'll need 1,000 for the first payment; you can't transfer in money from past years.

5% from Bradford and Bingley and you can transfer into it, also needs 1,000 minimum initial deposit. Ask about opening it with a transfer from this years funds if you want to do that.

If neither of those is suitable, Kent Reliance Building Society offers a direct ISA with a one pound initial deposit and 4.96% interest.

Since you can get ISAs paying a little more than your mortgage, preserving the tax break for future years with them seems like the best option if you want to stick with cash.