Where to put my spare £250 pm...mortgage overpayments, pension contributions, ISA?

Sapphire

morg_monster wrote: »

You can definitely get better than 5.25% on your cash ISA, even if you need to transfer it over, have a look at Martin's article to find one which suits you. You will definitely be able to beat 5.99% for a new cash ISA, and may well be able to for one which allows your past years' contributions to be transferred in.

You can get the National Savings ISA with a great rate of 6.3% tax free at present. Past contributions can be transferred into Kent Reliance (rate of 5.96% at present). Unfortunately NS don't allow transfers from previous years, but Kent Reliance do.

jamesd

OuterNet wrote: »

There is a rumour of a 3% pension contribution from work in the future,:T into a stakeholder scheme. I suppose it would be worth paying into the pension when my pay raise to 40K comes through, to get the tax relief but maybe focussing on the ISA allowances until then.

My mortgage rate is 5.99% by the way, and my cash ISA 5.25 gross. Does that mean the cash ISA isn't as good value as reducing my mortgage debt? I'm assuming here that stocks and shares ISA is a different thing altogether because of potentially higher growth rates?

Worth waiting for the work contribution alright. At 40k starting part way through the year you might not be higher rate this year - and with the limits changing, maybe not next year.

However, when you're higher rate, the ISA allowances also become increasingly valuable so it's still worth spending a few years trying to get all of the ISA allowances you can. So long as you're investing now, it's fine to defer the pension part. Though do do whatever is necessary to get any employer matching pension contributions. Personally I'm inclined to get to the point of using the full ISA allowance before using unmatched pension contributions.

You can get better cash ISA rates. Since you should have an emergency fund in cash of a few months of salary it's probably not a good idea to put the money towards the mortgage. If you have more cash ISA than you want for an emergency fund it's expected that from April 2008 you'll be able to switch cash ISA money to a stocks and shares ISA.

Taking money out of a mortgage, even a flexible one, is generally at the discretion of the mortgage lender and might not be available if you have no job, say. It's not a substitute for a standalone emergency fund.

It's also worth considering investing instead of having a repayment mortgage, since investments generally do significantly better than mortgage interest rates over the long term: the same amount of money is likely to leave you with a significant excess at the end. Because of the long term value of the ISA allowances this can be particularly helpful as a way to use them fully.

ISAs v Pensions: The Official Retirement Debate and Ok then - How do I choose a S&S ISA are well worth reading for discussion of the comparative merits of pensions and ISAs and for details of how to select investments and the practical details of ISA investing.