Should I withdraw - NS&I vs Mortgage

foxblade

Sorry if this comes across as a bit thick, but I want to make double sure I am doing the right thing!:embarasse

Ok a bit of background.

I have just moved to a Woolwich offset mortgage, I can overpay by 10% but at as we are just about to have a baby I am using the offset mode and putting all our savings into the offset savings account.

I have also recently found out that my Nan created a National Savings & Investments account for me when I was younger. She has now given me the paperwork and said I can do what I like with it. The amount is about £3500.

My question is:

Am I better withdrawing the money from the National Savings and putting it into my offset mortgage saving account, paying off a lump sum on my mortgage(capped to 10% so £5000 this year) or should I leave it there?

In the NS&I I am getting (Year one being Dec2010 because that's when it renewed.):

Year 1: inflation proofing + 0.75%
Year 2: inflation proofing + 0.85%
Year 3: inflation proofing + 0.90%
Year 4: inflation proofing + 1.15%
Year 5: inflation proofing + 1.36%

Apparently the certificate is Tax free and Index-Linked.

My gut is saying to keep it in the NS&I but some advice would be gratefully received!

Thanks.

:j

kidmugsy

What's the interest rate on the mortgage?

foxblade

Ah sorry its:

2.89%

DannyboyMidlands

Leave it there and if/when more NS&I certificates are released buy more. They're currently giving you over 6.5% tax free.

atush

Leave it in the NSI

dunstonh

Inflation could get closer to 10% before it starts to drop (possible scenario). So, NS&I index linked certs would be very attractive compared to the 2.89% on your mortgage.

If inflation does start to rise like that then once the cashflow issues have moved on then you would expect interest rates to rise quickly. At that point, it would switch over to get rid of the mortgage.

IMO, borrowers havent really suffered any real pain (apart from those made redundant). They have been shielded from price rises by having such low mortgages. The pain for borrowers is going to come later this decade (savers will rejoice no doubt)

foxblade

Thank you everyone, I thought that would be the correct thing to do :T