Can someone answer easy interest question for me please?

jetplane

Hi my brain will not function. My daughter is earning 4% on her savings. She has an offset mortgage which is charging 3.85%. She is basic rate tax payer. I think the savings will be better if paid in to the mortgage because 4% is 3.2% after tax, and 3.85% is not taxed.

Am I right? I have confused myself can anyone explain the difference to me?

Meanwhile she is looking for a cheaper mortgage.

TCA

Your arithmetic and logic is correct. Of course there are other riskier ways to invest (as opposed to save) and potentially earn more than either option.

CLAPTON

jetplane wrote: »

Hi my brain will not function. My daughter is earning 4% on her savings. She has an offset mortgage which is charging 3.85%. She is basic rate tax payer. I think the savings will be better if paid in to the mortgage because 4% is 3.2% after tax, and 3.85% is not taxed.

Am I right? I have confused myself can anyone explain the difference to me?

Meanwhile she is looking for a cheaper mortgage.

ye you are correct

do however make sure she keeps sufficient savings for life's emergencies unless she can withdraw cash from the offset mortgage

jetplane

Thanks I think she's someone who likes to see the money and the interest, which is why she was reluctant to take the mortgage option so I doubt she would take a riskier option

YorkshireBoy

Just to throw a spanner in the works, 5% (at TSB & Nationwide) is 4% after tax.

Obviously the gain will be better if there are two of them.

jetplane

She thinks I'm mean telling her how to save 0.65% I might blow her mind if I say she could stretch that to 0.08% and still see it in black and white.