The Oneaccount

bunking_off

Hi dzdoris/nikki,

No, the scenario you outline is what you don't want to do...

You're £73,022 in debt. That's what I love about the One Account, there's none of this euphemism of having a mortgage as if owing money can in some way be a good thing, a debt is a debt is a debt, whether it's to buy a house or anything else.

Now, let's say a relative has £50k savings that they want to put into a deposit account. They could put it in a savings account in their own name but what rate would they get - 5 to 6%, plus they'd pay tax on that. They could use their ISA allowance for some to be tax free, but that's not much of a dent on their savings.

Now, if they put the £50k into your One Account, you'd then be £23,022 in debt. You'd be paying interest on £50k less than you are at present - the interest rate depends on what tier you're on with the One Account, but it's at least 6.35%. If you're generous (I am with my in-laws), you'd give that relative all of the interest you're not having to pay on the One Account. Your position on overall outgoings would be neutral, but you have the warm feeling of lining the pockets of your relatives rather than the Royal Bank of Scotland. If you're less generous, you might agree to split the interest with your relative...perhaps you give them 5.5%, and keep the remainder yourself. Either way, what you pay your relative is what they get...the inland revenue are hardly likely to come after them for the tax on it.

Of course, all of this relies on a lot of trust between you and your relatives.

What you shouldn't do is deposit sufficient funds (e.g. £73,023) to put your account in credit. The One Account pays a measly amount of interest for accounts in credit (1.25%), so if you ever do get into credit, you must sweep any credit balances into something that pays reasonable interest. In the scenario you outline of putting £83,022 into the account, you'd be effectively getting 6.35% on the first £73,022 (the amount to get the One Account to zero), but only 1.25% on the other £10k. You'd be better putting £73,022 into the One Account, and the other £10k somewhere with a better interest rate.

Hope all this makes sense?

Take it you've heard about stoozing....getting a low interest rate balance transfer from a credit card and transferring that into the One Account until the promotional rate ends, then paying the money back from the OA to the credit card?

savvykaz

jamesd - I too would be extremely grateful for your views re. my mortgage please. Sorry, I know you're not getting paid for this, but DH and I were thinking of changing to the oneaccount (sounds too good to be true). Here's my figures:
HOUSE VALUE £150,000
MORTGAGE TERM LEFT 14 YEARS
CURRENT MORTGAGE PAYMENT £390 pcm
OUTSTANDING BALANCE £45,000

not in the position to add any savings or make overpayments

Thank you in anticipation :beer:

wymondham

I'm no expert on these matters, but I think the OneAccount works for people when you have quite a high savings amount to put in (30%+ of mortgage amount??), and can overpay. I 'm sure I'll be corrected!

Wyndham

wymondham wrote:

I'm no expert on these matters, but I think the OneAccount works for people when you have quite a high savings amount to put in (30%+ of mortgage amount??), and can overpay. I 'm sure I'll be corrected!

I think you are right. At some point the much higher interest rate matters less as you are offsetting your savings, but I've heard at least 20%, and 30% is better.

There are also other products out there that work in a similar way, but don't have quite as high a rate.

Always do the Maths!

bunking_off

wymondham wrote:

I'm no expert on these matters, but I think the OneAccount works for people when you have quite a high savings amount to put in (30%+ of mortgage amount??), and can overpay. I 'm sure I'll be corrected!

You're basically correct. The One Account works if;

a) you've got a high proportion of savings (although to be honest as JamesD will say, there are cheaper offset products),
or
b) you've got scope to make overpayments,
or
c) a variant on (b), you expect your salary to rise,
or
d) your income is irregular.

The reason I particularly mention (c) is that with a conventional mortgage or even offset, the natural tendency when you get a pay rise is to spend it. Either that, or at least a portion of it ends up languishing in your current account or in relatively low interest savings accounts. With the One Account, any excess funds at the end of the month are automatically paying down your mortgage and the spectre of seeing how large your overdraft is every time you get a balance at the cashpoint tends to focus the mind.

I'll illustrate by example. Let's say you take home £2000 a month, your mortgage is £500 a month and all your other outgoings come to £1500/month, leaving you nothing at the end of the month. Way-heh, you get a 10% pay increas and now take home £2200. Inflation probably means your outgoings have gone up to (say) £1550 a month. With a conventional mortgage, if you were disciplined, you'd overpay your mortgage by the extra £150/month that you're left with at the end of the month. I'd lay a hefty bet you don't, though. People are naturally conservative. Chances are you'd overpay £100 and keep the rest for a rainy day, or on some months forget to overpay at all. With a current account mortgages like the One Account (other products are available) though, the overpayment is automatic...no conscious thought needed so no chance for the intervention of human nature. Of course, the converse is underpayment is automatic as well...

To put some real context around this, the nature of wage inflation outstripping real inflation means in my case I typically "pay" double the amount off my mortgage nowadays that I'd originally planned when I took the account out. This means that rather than 25 years, my mortgage will be paid off in just under 10. It doesn't negate all of the downsides of the higher rate, but according to my rough maths, on a £100k mortgage at a good rate of 4.5% paid off over 25 years, you'll pay approx £65k in interest. The same loan on the One Account rate of 6.35% but exploiting the features so you pay off in 10 years will require approx £34k in interest. Of course, the best approach is to get the 4.5% loan and religiously overpay every spare penny you've got, but I know I don't have that discipline.

Savvykaz - I offer you the same advice as I did to dzdoris, though...you say you've no savings and no scope to overpay. On this basis the One Account isn't for you.

dzdoris

Thank you so much for your replies (bunking_off/jamesd) :T , you've been so helpful.

Bunking_off - I've never heard of stoozing?

....getting a low interest rate balance transfer from a credit card and transferring that into the One Account until the promotional rate ends, then paying the money back from the OA to the credit card?

Does this basically mean borrowing some money off a credit card to lower the interest you pay on the one account and then put it back on like you say after the promotional rate ends?

bunking_off

dzdoris wrote:

Does this basically mean borrowing some money off a credit card to lower the interest you pay on the one account and then put it back on like you say after the promotional rate ends?

Correct. Consider that M&S &more card, 3.9% for life of balance with no transfer fee. Get one, transfer up to your limit onto the One Account Visa card (credit balances get swept into your main account once a week so will lower your balance on that), then just make minimum payments from the One Account to the &more card every month. It'll take years to pay it back, and in the meantime you'll be saving the difference between 3.9% and your One Account rate on whatever balance is left on it.

Musts:
1) Set up a DD for minimum payment
2) Lock the card away and never, never use it for purchases.

Just done this myself - on a transfer of £6k will save £hundreds in interest.

It's so popular it warrants its own board on moneysavingexpert - see under "Credit Cards".

dzdoris

:T Thank you again bunking_off :A

This website is fantastic! I could honestly spend the whole of my free time reading tips on how to save money. What did people do before this website existed?

Anyway no doubt I'll be speaking to you guys again sometime

See you around

(A very happy and without doubt better off)

:j :rotfl:

blisteringblue

bunking_off wrote:

You're basically correct. The One Account works if;

a) you've got a high proportion of savings (although to be honest as JamesD will say, there are cheaper offset products),
or
b) you've got scope to make overpayments,
or
c) a variant on (b), you expect your salary to rise,
or
d) your income is irregular.

I'm going down the oneaccount route and fall into b) c) & d) above, although I have a few shares which I may say soon. I get a 15% bonus each year and again that will be going in.

I know the interest rate isn't so hot, but as I only want 60-70% of the house value it should be manageable.

But perhaps the big clincher for us is that my wife is being made redundant this year after almost 20 years and will get quite a large payout (approx 25% of mortgage). She wants to retrain for 12 months and I think the oneaccount is great for this as we just pay this into the account and pay a lot less interest but still have access for living expenses etc.

Plus I have heard that once you see that big red figure each month there is nothing better for focusing the mind to get it paid off.