Overpayments or regular ISA savings

Downpour

We regularly make overpayments on our mortgage. We have just come off a fixed rate and are fortunate in currently paying 2.5% interest on the variable rate. We can get up to about 3% interest in an instant access ISA. We have no restrictions on overpayments; so it seems like a no brainer. Save in an ISA until mortgage rates start to rise above the rate paid on our savings. Then use the savings to overpay at that point. Is that right or are we missing something?

gritts

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

2.5% mortgage rate needs a 3.1% savings rate (basic tax rate)

cha97michelle

Interesting. I personally have been paying it all into the mortgage with the same rate and conditions as you. I hadn't given much thought really as to what rate i would need to beat it. I just have a bit of tunnel vision i think. Must shake this mortgage.

I know myself though. Money in my ISA is not likely to get touched until i am retirement age, i don't even consider it when i think about the savings we have. I must get my head around the ISA side of stuff again as i am sure my account is only paying a pitiful amount. I have been meaning to move it all year and not got round to it. Bad when i consider myself fairly money savvy.

Jonbvn

gritts wrote: »

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

2.5% mortgage rate needs a 3.1% savings rate (basic tax rate)

The OP was asking about ISA's. Tax has no bearing on these accounts???

OP you are correct. Provided your ISA rate beats your mortgage rate then it is savvy to continue to fill-up your ISA's.

ailuro2

Agree with downpour, fill up both your ISAs first, then if by any stroke of luck you've any extra money (!) then overpay the mortgage if you can't find a better interest rate after tax.

Lokolo

Its also good to have something to fall back on, assuming you have no emergency funds.

MS_Dolphin

Personal choice really, for me I'd go the ISA route for the following reasons:

Higher interest on your ISA means you are better off in monetary terms.
Compound interest on your savings and investments err, compounds the affect.
I have an ATR that would lead me to invest in a stocks and shares ISA over a cash ISA, therefore even greater "potential" for improved returns.
The flexibility of saving in an ISA

But that's just me, on the flip side, the biggest reason I can see for repaying the mortgage is that, we don't just make decisions for monetary reasons, theres the emotional factor of seeing your mortgage reduced - and gone!!