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Should I use my offset, or a savings account?
Roberta1
Posts: 649 Forumite
Hello all,
I'm in the lucky position of having a tracker mortgage pegged at 0.85% above BoE base rate - so currently paying 1.35%.
There is an offset attached to this mortgage where we currently have all our savings (about £25k) as we like paying as much off the mortgage as possible.
However I'm very conscious that 1.35% is a woeful savings rate! My question is, are we better moving our savings to a higher-paying account elsewhere (and transferring the interest back into the mortgage), or keeping it where it is to enjoy the full benefit of ofsetting against our mortgage?
I'd be grateful for your views.
TIA. Roberta
I'm in the lucky position of having a tracker mortgage pegged at 0.85% above BoE base rate - so currently paying 1.35%.
There is an offset attached to this mortgage where we currently have all our savings (about £25k) as we like paying as much off the mortgage as possible.
However I'm very conscious that 1.35% is a woeful savings rate! My question is, are we better moving our savings to a higher-paying account elsewhere (and transferring the interest back into the mortgage), or keeping it where it is to enjoy the full benefit of ofsetting against our mortgage?
I'd be grateful for your views.
TIA. Roberta
0
Comments
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You need to consider the tax that normal savings will incur. So, for 1.35% a basic rate taxpayer needs 1.6875% and a 40% taxpayer, 2.25% before tax.
For the last year my offset savings have been in a West Bromwich bond paying 4.35% gross. As the savings equate to almost half of my outstanding mortgage it works out that the interest earned covers more than ALL of the interest charged to my (1.24%) mortgage.
However, when the bond matures I intend to deposit it for three years in an NS&I RPI-tracking account. This will pay RPI +1% taxfree (minimum 1%). At the moment that would be 4.7% (the same as 5.875% in taxable savings). These accounts are limited to £15K per person so we'll need one each.
You shouldn't be overpaying either. Ideally, the mortgage should be interest only until rates rise. But I haven't done this myself - I'd be too embarrassed to ask!
GGThere are 10 types of people in this world. Those who understand binary and those that don't.0 -
Thanks for the advice. I should have mentioned that I don't pay tax - I don't earn enough!
Does that change the picture significantly?0 -
I think you can have both the 3y and 5y so £60k for the 2 of you.Gorgeous_George wrote: »However, when the bond matures I intend to deposit it for three years in an NS&I RPI-tracking account. This will pay RPI +1% taxfree (minimum 1%). At the moment that would be 4.7% (the same as 5.875% in taxable savings). These accounts are limited to £15K per person so we'll need one each.
GG
OP definately look for better rates, the monthly savers work as well and often have good rates0 -
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