What to do with 10K?

blapblap

Hi,

I have managed to save 10K and I'm wondering what the best way to invest/save would be?

I have a tracker mortgage which is very low and I am tempted to pay some of that off but are there any good ISAs/saving plans that I could use to make good use of my savings? What would you advise...

Thanks for your time

toffifee

I've just opened a Barclays ISA with 10k. When it's all set up I will be able to offset the ISA against my Woolwich mortgage, while making use of some of this year's ISA allowance before it disappears in a couple of weeks.

(I had to be careful - some of Barclays ISAs can be offset and some can't.)

dunroving

toffifee wrote: »

I've just opened a Barclays ISA with 10k. When it's all set up I will be able to offset the ISA against my Woolwich mortgage, while making use of some of this year's ISA allowance before it disappears in a couple of weeks.

(I had to be careful - some of Barclays ISAs can be offset and some can't.)

Definite +1.

Storing money in an account that is offset against a mortgage can be worth a lot more than ISA interest. No tax is paid on the amount you save on mortgage interest, so if the mortgage is at 3.5%, for example, that beats just about any cash ISA hands-down.

If you can open an ISA that is offset, this helps orotect the tax-efficiency in the event that at some point in the future an ISA may pay more interest than you are paying on your mortgage.

blapblap

toffifee wrote: »

I've just opened a Barclays ISA with 10k. When it's all set up I will be able to offset the ISA against my Woolwich mortgage, while making use of some of this year's ISA allowance before it disappears in a couple of weeks.

(I had to be careful - some of Barclays ISAs can be offset and some can't.)

Thanks. Would you (or someone else) be able to explain how this works? I dont quite get the offset bit?:p

steelbru

http://www.which.co.uk/money/mortgages-and-property/guides/what-is-a-mortgage/what-is-an-offset-mortgage/

dunroving

blapblap wrote: »

Thanks. Would you (or someone else) be able to explain how this works? I dont quite get the offset bit?:p

There is a particular type of mortgage called an offset mortgage (if yours isn't an offset mortgage, you'd need to remortgage if yuo want to follow this route).

Say your mortgage is for £100,000 and your mortgage interest rate is 3.5%. So normally, your interest payments would be £3,500 per year (ignoring paying off capital for convenience).

Some people might invest £10,000 by paying off £10,000 of the mortgage. They thereby save £350 in mortgage interest - but the money is now "gone" (not recoverable if you needed £10,000 for other purposes). Of course, it has paid of £10,000 of your mortgage so you'll finish paying it off sooner).

An offset mortgage allows you to offset money in designated linked accounts against your mortgage debt. so in the above example, having £10,000 in an offset bank account would mean you only pay mortgage interest on £90,000. This is obviously much more flexible than paying off £10,000 in mortgage debt.

If you Google offset mortgage you'll find lots of simple explanations. In fact I bet this site has a section on offset mortgages.

ETA: Look towards the bottom of this page on MSE:

http://www.moneysavingexpert.com/mortgages/fixed-discount-mortgage-guide

toffifee

Here's an example.

Normal mortgage: £100k
Savings in another account: £10k
Pay interest on £100k
Get interest on £10k

Offset mortgage: £100k
Savings in another account, linked to the mortgage: £10k
Pay interest on £90k
Get no interest

So with an offset mortgage you don't get any interest on your savings but the amount of interest you pay on your mortgage is reduced.
My Woolwich mortgage calculates the interest paid every day, so the amount I save by offsetting goes up and down depending what's happening in my current account but is always a minimum amount based on my linked savings.

The statements they send you that tell you how much interest you've saved by offsetting are very satisfying.

We're saving less money every month now that interest rates are so low but since the mortgage was taken out in 2002 we have saved a substantial sum by offsetting.

There are things to be wary of though: if you're not someone who is careful with their finances then you could end up in a mess. The amount we've saved by offsetting can be spent by us at any time...no questions asked. Around the world cruise anyone? However the full amount of the mortgage must be paid off at the end of the term so if I splashed out now on something I would have to be able to pay it ALL back at the same time as paying off the remaining mortgage.

dunroving

toffifee wrote: »

Here's an example.

Normal mortgage: £100k
Savings in another account: £10k
Pay interest on £100k
Get interest on £10k

Offset mortgage: £100k
Savings in another account, linked to the mortgage: £10k
Pay interest on £90k
Get no interest

So with an offset mortgage you don't get any interest on your savings but the amount of interest you pay on your mortgage is reduced.
My Woolwich mortgage calculates the interest paid every day, so the amount I save by offsetting goes up and down depending what's happening in my current account but is always a minimum amount based on my linked savings.

The statements they send you that tell you how much interest you've saved by offsetting are very satisfying.

We're saving less money every month now that interest rates are so low but since the mortgage was taken out in 2002 we have saved a substantial sum by offsetting.

There are things to be wary of though: if you're not someone who is careful with their finances then you could end up in a mess. The amount we've saved by offsetting can be spent by us at any time...no questions asked. Around the world cruise anyone? However the full amount of the mortgage must be paid off at the end of the term so if I splashed out now on something I would have to be able to pay it ALL back at the same time as paying off the remaining mortgage.

I'm curious - how would you go about doing this? (sorry if that's a bit off-topic)

kidmugsy

High interest current accounts are a pretty good deal: why not use them while they are still available?

jimjames

toffifee wrote: »

I've just opened a Barclays ISA with 10k. When it's all set up I will be able to offset the ISA against my Woolwich mortgage, while making use of some of this year's ISA allowance before it disappears in a couple of weeks.

(I had to be careful - some of Barclays ISAs can be offset and some can't.)

Really depends if the OP has a Barclays mortgage though.

For most people an ISA can easily be beaten with 4% and 5% accounts.

Other option if you already have sufficient emergency cash funds is to look at pensions or S&S ISAs.