ISA or offset mortgage? 31 January 2005 at 11:16AM edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings 1 reply 1.2K views

scootermacc

Apologies for reposting this from elsewhere...

I have read some articles recently suggesting that placing money into an offset mortgage account would be more beneficial than putting the same into an ISA.

I have 2 questions:

1. How do I calculate the best option? Do I simply compare the rates? How does the tax break on the ISA affect this?

2. Does it make any difference whether I put a lump sum (say £3000) in, or drip money in any month (say £250 pm)?

Thanks in advance for any help.

Reaper

Assuming you already have an offset (if not read this to see if it is suitable for you) then the calculation is easy because they are both tax free products, so just compare the interest rates. So if you are paying a typical 5.5% on your offset mortgage and would get 5% in an ISA then you are better off putting the money in your offset.

As for drip feeding or putting in a lump sum - lump sums are always better. The interest is worked out each day, not on your end balance, so the more money you have in there from the beginning the more you will earn/save.