Is the One Account right for us?

LJD1_2

Hiya
I remember reading a post a while back saying that unless you actually have savings then the one account isn't actually much good for you. Life has it that recently we've had to borrow some of the facility that we'd already paid back. This of course means we've effectively been on an interest only mortgage for the last three years which i'm not happy about. I'm starting to think maybe we need a more 'traditional' mortgage that means if you over spend you're not actually eating away at mortgage payments. Any advice? I hope i've made sense!

MarkyMarkD

There have been lots of threads on this, some including useful calculators which show the financial impact of offset accounts.

My simple rule of thumb is that offset accounts are only better for people who pay higher rate tax and have a lot of "lumpy" income which they need available later - which mainly means self employed people.

If you are on a standard monthly salary, and just want to overpay - and, if necessary, draw down the overpayments - you can do all of the above with a far better value flexible mortgage.

homer_j_3

the one account is only worth having if you are overpaying your mortgage or have money left over at the end of the month.

If you are spending what you are earning then a traditional mortgage is more suitable as you can get better rates. Have a look on the one account website and do the mortgage shrinker exercise to see what effect you are having at the moment. I am guessing a cheaper fixed rate or pref rate may be more appropriate.

the one account is not really an offset mortgage but a current account mortgage so having lump sum savings isnt an issue unless you have it sat in your current account....

MarkyMarkD

homer_j wrote:

the one account is not really an offset mortgage but a current account mortgage so having lump sum savings isnt an issue unless you have it sat in your current account....

But a current account mortgage is just a more extreme form of offset account ... I'd lump them together with offset in terms of my disdain for them.

wymondham

so, if we had £1k left in our one account at the end of each month (£2k end of month 2 etc..), would this work out at making one account a good option??
I've been trying to get my head around how this account works for weeks - still fathoming it out!! :rolleyes:

I can't see the reason why using the one account shrinker would make our payments around £272, whereas the YBS offset (similar) would be £407 - one isnt right..

homer_j_3

the purpose of the one account is to utilise the excess funds that you have in your bank account to offset the interest being accrued against your debt. The money you have left over act as overpayments against your debt as such thus saving you money over the longer term.

So if you have 1k left over at the end of the month you would have effectively made a 1k overpayment to your mortgage. If you do this everymonth then the interest you are being charged will be calculated on the reduced balance rather than the higher balance

People will say that you can take that one step further by living off a credit card and leaving you salary in your account upto the latest point before your credit card becomes due and interest payable on it. This way you are paying less interest. Dont use the one account credit card though as they take payment more frequently from you..

Sorry it is something I have difficulty explaining in this way - get me in front of you and I can do a far better job with the sales aids that demonstrate the benefits..

jamesd

LJD1, by using the facility to borrow back the money when you had to you've actually used one of the flexible features of the One Account, one where it does offer some advantage compared to non-offset mortgages. So at least you've gained some benefit for the higher interest rate you've been paying. Assuming that you had to, rather than doing it accidentally because it combined the finances and you didn't notice doing it (one of the possible disadvantages).

If you are overspending, it's worth remembering that the One Account does offer cheaper interest on borrowing than many other borrowing options, so it might actually have been cheaper for you to have overspent that way than if you'd had a different mortgage and borrowed on credit cards and overdraft instead.

If you want to have a cheaper mortgage and don't have many tens of thousands going into and out of your current account each month you'll certainly get a cheaper mortgage by switching to a more normal offset mortgage and more still by switching to a flexible mortgage that allows overpayment and drawdown (or other words meaning borrowing back overpayments).

wymondham, can't say without knowing what numbers you put into the different shrinkers. What you said about savings and money "left over" each month in the current account might explain it.

wymondham

this is the bit that confuses me here.... if i have £1k left in the account at the end of the month, you say this overpays the mortgage, but oviously i can't afford for all this to go on the mortgage - assume it's not then available as it's gone?!! - sorry if this is a really dumb question, but it's such a different way of dealing with your finances that i'm struggling, although it *appears* to be a very good option with people who have savings and also have a fair bit left each month.....

LJD1_2

Many thanks for your replies.

Jamesd - we've had to use what we'd paid off due to repair work on our house. I didn't realise that the one account was higher interest. We're paying their lowest rate as we've only borrowed against half the value of the house. If this is still high then I guess we're better offer changing mortgage to a lower rate. I'll search tomorrow and see what comes up.

Thanks again.

MarkyMarkD

But, Homer and Jamesd, the OP could have done exactly what they have done, if they had chosen a "standard" (non-offset) flexible mortgage in the first place.

Essentially the only difference of an offset/current account mortgage is that you don't have to think about transferring the excess cash in your current account to the mortgage, and you don't have to ask for it back again when you need it.

But all you are saving is some convenience in exchange for a HUGE difference in the interest rate payable.

jamesd

LJD1, depending on loan to value after offset amount, someone borrowing 100,000 would be paying between 650 and 1500 more in interest each year, compared to an offset account like the 5.20% YBS lifetime tracker. This ignores the effect of money going into and coming out of the One Account during the month - if that was 20,000 in and out and an average of 10,000 in the account that couldn't be put in another offset mortgage that would reduce the One Account cost by 585 at 50% LTV. YBS was just an example, not a recommendation.

If you want to preserve a lot of the flexibility you might consider an offset mortgage. That lets you pay into an offset savings account and reduce the outstanding mortgage balance in a similar way to the One Account.

Next lower on flexibility is a flexible mortgage. This might be a quarter of a percent cheaper than an offset mortgage (or not). You can find flexible mortgages that allow unlimited overpayments and withdrawing of overpayments. It's a bit more work to withdraw, since you have to ask the mortgage lender.

wymondham, I agree that it's obvious but that's the way the One Account calculators tend to work. For money left over I suggest you try putting in just the amount you want to save in the mortgage account and offset against the mortgage. Don't include money you'll be investing, say. Might also have been showing you an interest only rate, as the minimum you'd "have" to pay each month.

MarkyMarkD, would have been harder to match if the cause had been unemployment. Easy to match in this case for home improvement with 50% LTV.