Overpay & saving

DreamerFTB

Probably a stupid question but I want to double check with you if I am missing something:

Let's say I have a few 4% - 6% gross regular saver / current accounts where I can withdraw money whenever I want and I have a tracker mortgage around 2.5% with unlimited overpayments.

Am I right saying that it's better to fill the regular saver / current accounts first, and then overpay the mortgage?

The only problem I see is if BoE rises interests of an amount over the regular saver / current accounts interest rate, but this means a rise of more than 2% in a year, and I could always take the money out and repay instantly if this happens.

Also doing this I would be in control of the money that is a "nice to have".

Am I missing anything else? Thanks!

anselld

DreamerFTB wrote: »

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Let's say I have a few 4% - 6% gross regular saver / current accounts where I can withdraw money whenever I want and I have a tracker mortgage around 2.5% with unlimited overpayments.

Depends on your tax status. You need to compare net interest rate with mortgage rate. So for example 4% gross is only 2.4% net for a high-rate taxpayer, in which case the mortgage OP would be better.

DreamerFTB

Thanks, so the rule is: as long as your savings produce a higher interest than the mortgage, it's better to save first and then overpay.

dimbo61

It is always a good idea to have that Emergency Fund of 3/6 months of income in savings ( Just in case the car breaks down/central heating etc)
If you overpay you cannot ask for it back!
You are doing the right thing by both saving into regular savers and overpaying

Thrugelmir

A 6% regular saver averages out at 3% gross over 12 months. 3% gross equates to 2.4% net.

As mortgage interest is calculated daily and charged monthly. The true APR on the loan is higher than the flat 2.5% interest rate.

anselld

Thrugelmir wrote: »

A 6% regular saver averages out at 3% gross over 12 months. 3% gross equates to 2.4% net.

No. 6% is 6% gross ( 4.8% net of basic rate) for all the time the money is invested. Averaging over 12 months is a pontless comparison if the alternative option is regular mortgage overpayments.

Thrugelmir

anselld wrote: »

No. 6% is 6% gross ( 4.8% net of basic rate) for all the time the money is invested. Averaging over 12 months is a pontless comparison if the alternative option is regular mortgage overpayments.

I'm merely trying to offer an alternative view. Many people get sucked in by headline rates when making comparisons. All that really matters is the most effective way to save money.

mlp

A 6% regular saver averages out at 3% gross over 12 months.

That's only really a fair statement if you have a lump sum of, say, £3600 to invest (using the first direct limit as an example). For someone who has no lump sum, but has £300 spare each month then the regular saver wins.

mlp

However, the OP should note that in the case of the First Direct regular saver you are effectively locked in for 12 months if you want to benefit from the 6% rate

anselld

mlp wrote: »

That's only really a fair statement if you have a lump sum of, say, £3600 to invest (using the first direct limit as an example). For someone who has no lump sum, but has £300 spare each month then the regular saver wins.

... Even then it isn't fair because in practice you would drip feed the 6% from a 4% current account etc. I would re-itterate that 6% regular *is* 6%, simple as that. The only downside is the 12 month commitment.

anselld

Thrugelmir wrote: »

All that really matters is the most effective way to save money.

... which in this case is the 6% reg by a long way.