First Direct Offset Savings acct

pjala

The say on their web site that the offset savings account is the equivalent of another account offering over 7% or over 10% depending on whether your a lower or higher rate taxpayer.
What I dont understand is if that is the case, why dont we all just get one of their offset mortgages / savings accounts? I am looking seriously at this, so if you can offer reasons why not that would be excellent.
Paul.

NB http://www.firstdirect.com/rates/current.shtml#pagetop is the web page

grumbler

Just read carefully what they write on the same page at the same place:

By offsetting your savings against your mortgage, even though your savings don’t actually earn credit interest they achieve the same overall benefit as an account paying 5.90% AER. As a bonus it’s tax free, so tax payers would have to find a savings account that pays 7.43% AER (or 10.02% AER for higher rate tax payers) to achieve the same overall benefit.

You must have 5.9% offset mortgage with FD to 'earn' this interest.

pjala

Ok, but if you owe more than you have - cash wise - then you are earning by paying the mortgage off at a rate of 7.43%? So while you have leftover cash in your account, dont bother with savings, emergency funds, or anything else but use it to add to the offset of the mortgage and you are then earning at that rate?
This is how I understand it.
Then if we use interest free credit cards to buy things for 6 months or so we are gaining on that and using the money saved to further earn even more money in the same way.
My problem with it is the web site is just not very explicit - I need examples!!
Thanks
Paul.

grumbler

Briefly:
1. FD is not the only one who offers offset mortgages. Maybe theoneaccount gives more clear explanation.
2. Offset mortgages are very flexible and rates are not the best as a result.
3. You must have a lot of savings to make offset mortgage financially more efficient than usual mortgage.
4. Yes cases are known when mortgage is fully ‘offseted’ by savings ‘stoozed’ from 0% credit cards. I.e. borrower only repays mortgage and actually do not pay any interest.
….
There is a lot of information in the internet and here. Just search!

Reaper

Forget the 7.43% figure. It is meaningless as the higher the rate they charge you for your mortgage the better this figure looks. Ideally you want it as low as possible because your mortgage debt will exceed your savings.

Offset mortgages charge a higher rate of interest than discount mortgages. They are only worthwhile if you have a substantial amount of savings to offset it with. If not you are better off going for those 2 year deals and switching every time they run out.

Read [thread=471]this thread[/thread] where you will find a formula to tell you when it is worth going for one.

I have an offset mortgage and a combination of existing savings and a large pot of stoozed money from 0% credit cards mean I pay no interest, enabling me to pay off my mortgage much faster. However, as I say, they are not suitable for everyone.

davidjwest

One thing to bear in mind with offset mortgages (at least the FD one) is when you make overpayments, you can withdraw the money at a later date. This is useful when you want to make sure you have some emergency cash. You're more likely to leave the money for emergencies only if it has been paid off the mortgage than if it is sitting in a savings account looking at you! Well that's my opinion and experience anyway.

Theres a link to an "offset mortgage calculator" here:

Offset Mortgage Calculator

Which tells you how much better off you might be.

cloud_dog

pjala, would *really* recommend you read the "offset" thread Reaper points to as the benefits of offsetting are not black and white.

As stated before (other posts), love the idea of offsetting but cannot make the numbers work in my favour. Mrs Cloud_dog does not work so savings are earning 5% (gross) and mortgage rate is 4.75%, also the mortgage (Nationwide BRT) allows overpayments that can be re-drawn without incurring additional costs.

cloud_dog

Walletwatch

cloud_dog wrote:

pjala, would *really* recommend you read the "offset" thread Reaper points to as the benefits of offsetting are not black and white.

As stated before (other posts), love the idea of offsetting but cannot make the numbers work in my favour. Mrs Cloud_dog does not work so savings are earning 5% (gross) and mortgage rate is 4.75%, also the mortgage (Nationwide BRT) allows overpayments that can be re-drawn without incurring additional costs.

cloud_dog

There's another one under the mortgages section saying "Is offset right for me?" - you may find a couple of relevant observations there as well.

pjala

I think I have just about got it sorted out in my head, the First Direct offset calculator plus FAQ was really helpful.
I believe the Nationwide mortgage where you can get a rate of less than 5%, plus pay extra - with the proviso that you can get the extra back whenever you like at the current rate - seems to be better than an offset as long as I can be rigorous with savings and pay them into ISA's at a better rate than the mortgage rate - currently with the best buys at anything from 5.15 and above.

Thank you all for all the really useful info and comments.
P