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'wasting' ISA allowances
sdooley
Posts: 918 Forumite
ISAs allow you to save tax free into the future and you get £5,000 per year. At the moment I am lucky enough to probably be able to afford to save around that much over the year. What are the pros and cons of putting my money into the ISA (or taking out the amounts that are already in there) vis-a-vis making overpayments on the mortgage.
My ISA pays 2.5% until sometime at the end of next year.
The bit of my mortgage I'd pay down is a fix for 5 years at 4.79%.
My worry is in the past ISA rates were often a bit higher than mortgage rates (doesn't make sense but they were), I might be losing out in the long term by giving up my tax-free allowance (which I won't get back).
My ISA pays 2.5% until sometime at the end of next year.
The bit of my mortgage I'd pay down is a fix for 5 years at 4.79%.
My worry is in the past ISA rates were often a bit higher than mortgage rates (doesn't make sense but they were), I might be losing out in the long term by giving up my tax-free allowance (which I won't get back).
0
Comments
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Once you are past an emergency saving pot, theres not much point saving for the hell of it when you could do something else with it.
It makes more financial sense to pay off the mortgage (as long as there are no over repayment fines) rather than save.
But it also makes sense that if you want to buy a car in 3 years, that you save for it rather than taking out a 10% car loan.
If you are worried - why not do a bit of both? £2.5k in savings, £2.5k in mortgage.0 -
Look at the total amout of surplus cash and the mortgage payents.
If these are more than the full ISA allowance then you need to plan to fill the ISA's before the mortgage runs out and keep the mortgage going for longer rather than overpay.
Depending on how long you have to go with your rate ISA may not make much sense.
Better to also have along term retirement income plan and make sure any savings fit in with that, cash and debt free are just part of the toatal.0 -
You could also consider an offset mortagage. In this way your ISA savings (and any other savings) held with that bank are offset against the mortgage. In this way your savings are "helping you" pay the mortgage, but at the same time once it is fully paid you get your savings back as ISAs or whatever other form they are in.
Two banks that offer offset mortgaes are
RBS http://www.oneaccount.com/ and
First Direct http://mortgages.firstdirect.com/mortgages-explained/offset-mortgages
but there are probably some other options around.
Obviously you have to do some number crunching and make sure it works for you.
Nessie0
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