£800 a month for 5 years

Terry_Scott

I am looking to put £800 a month away for 5 years to pay off a mortgage.
I am after a savings scheme/ISA (or whatever the technical term is).
I appreciate these may have to change through the 5 year period but I am looking for a starting point.
My first deposit will be £800 and 59 more payments of £800.
Thanks in advance and apologies if the question is a little naive.

eskbanker

Are you able to make overpayments on the mortgage directly? Depending on the rate it may be better to do this than to try to save elsewhere.

If not, then there are regular saver accounts at 4-6% (you'd need several to cover the £800) but these only last for a year so after the first year you'd need to open other accounts to stash the maturing proceeds - interest-paying current accounts at 3-5% are currently the best bet for this. Read http://www.moneysavingexpert.com/savings/which-saving-account to get you started....

Terry_Scott

Thanks for the response.
The mortgage is now on a 5 year fixed at about 2.5% (Mortgage term is about 25 years)
I plan to pay the mortgage as normal and then by the end of the 5 years have enough additional saved to pay the remaining balance.
I can overpay by 10% of the previous years amount paid. From a quick bit of maths (again i may be being naive) it seems this isn't beneficial?

CLAPTON

Terry_Scott wrote: »

Thanks for the response.
The mortgage is now on a 5 year fixed at about 2.5% (Mortgage term is about 25 years)
I plan to pay the mortgage as normal and then by the end of the 5 years have enough additional saved to pay the remaining balance.
I can overpay by 10% of the previous years amount paid. From a quick bit of maths (again i may be being naive) it seems this isn't beneficial?

what bit of maths did you use to say that paying 10% wasn't beneficial?

the correct bit of maths, notes that unless you can get 2.5% net of tax in savings interest, then it is better to repay the mortgage (assuming no charges or fess and assuming the repayment is applied to the mortgage forthwith.

HappyMJ

CLAPTON wrote: »

what bit of maths did you use to say that paying 10% wasn't beneficial?

the correct bit of maths, notes that unless you can get 2.5% net of tax in savings interest, then it is better to repay the mortgage (assuming no charges or fess and assuming the repayment is applied to the mortgage forthwith.

Saving into regular savings accounts earning 6% interest is much better than saving 2.5% interest. From next year and the regular savers won't pay out until next year anyone can earn £1,000 of interest free of any tax. You can't get all of that into regular savers so some will be invested at 3% which is still better than 2.5%.

If rates rise OP will have to re-evaluate whether saving is better than paying the mortgage off.

In 5 years the 10% restriction is lifted and OP can if worthwhile pay the entire mortgage off at once.

CLAPTON

HappyMJ wrote: »

Saving into regular savings accounts earning 6% interest is much better than saving 2.5% interest. From next year and the regular savers won't pay out until next year anyone can earn £1,000 of interest free of any tax. You can't get all of that into regular savers so some will be invested at 3% which is still better than 2.5%.

If rates rise OP will have to re-evaluate whether saving is better than paying the mortgage off.

In 5 years the 10% restriction is lifted and OP can if worthwhile pay the entire mortgage off at once.

I agree that 6% ( even less 20 or 40% ) is greater than 2.5%

bigadaj

HappyMJ wrote: »

Saving into regular savings accounts earning 6% interest is much better than saving 2.5% interest. From next year and the regular savers won't pay out until next year anyone can earn £1,000 of interest free of any tax. You can't get all of that into regular savers so some will be invested at 3% which is still better than 2.5%.

If rates rise OP will have to re-evaluate whether saving is better than paying the mortgage off.

In 5 years the 10% restriction is lifted and OP can if worthwhile pay the entire mortgage off at once.

Though if a higher rate taxpayer then there is only a £500 interest allowance that is tax free.

MarkBargain

£800 a month for five years is £48,000. Where are the accounts that pay 6% interest? I think you'll find those are very limited e.g. £300 a month but only for a year and then only if you have their bank account etc.

What's your risk appetite? You could put the money into a shares or property based ISA which could make you a lot (or you could lose).

Archi_Bald

MarkBargain wrote: »

£800 a month for five years is £48,000. Where are the accounts that pay 6% interest?

Presently, you can put over £17,000 a year into 4-6% Regular Savings accounts, plus some £50,000 into 3-5% current accounts.

The OP will only need a place for £9,600 for the next 12 months, all of which can go into 6% Regular Savings accounts. They can then review the situation towards the end of the 12 months.

Trying to outperform these savings accounts with an S&S ISA over a mere 5 years would indeed be massively risky.

MarkBargain

Archi_Bald wrote: »

Presently, you can put over £17,000 a year into 4-6% Regular Savings accounts, plus some £50,000 into 3-5% current accounts.

The OP will only need a place for £9,600 for the next 12 months, all of which can go into 6% Regular Savings accounts. They can then review the situation towards the end of the 12 months.

Trying to outperform these savings accounts with an S&S ISA over a mere 5 years would indeed be massively risky.

It'd take a big effort though, opening several bank accounts (presuming they all accept you after their credit checks) and then meeting the requirements for paying money in, setting up direct debits etc, then closing some accounts a year later when the short term rates expire. The Santander 123 is worth doing at 3% for £20K (less £5 a month fee, plus any bills cash back) but I never bother with the others.

I agree a S&S ISA would be very risky. Checking back the history of my L&G Ethical Trust ISA, that's up about 68% over the last five years so in that case it would have paid off, but who knows what the next five years holds.

HappyMJ

MarkBargain wrote: »

It'd take a big effort though, opening several bank accounts (presuming they all accept you after their credit checks) and then meeting the requirements for paying money in, setting up direct debits etc, then closing some accounts a year later when the short term rates expire. The Santander 123 is worth doing at 3% for £20K (less £5 a month fee, plus any bills cash back) but I never bother with the others.

I agree a S&S ISA would be very risky. Checking back the history of my L&G Ethical Trust ISA, that's up about 68% over the last five years so in that case it would have paid off, but who knows what the next five years holds.

A big effort that is well worth the time spent.

Opening a HSBC, First Direct and Marks and Spencer current account then creating a standing order from your own actual current account to send money to those accounts which send money to the regular saver account is well worth it.

I also set up donor current accounts and switched them using the switching service and made another £500 or so in switching bonuses. This requires you set up a Tesco Instant Access savings account and a Tesco Online Saver and set up 3 new current account with another bank. I set mine up with Halifax. You then set up a direct debit to pull a couple of pounds from Halifax to Tesco then the three new current accounts at the Halifax will eventually be switched to the HSBC, First Direct and Marks and Spencer.

Easy money. Can be done in a few hours a week spread over about a month. I now have 20 current accounts, 6 regular savers and 8 saving accounts. I've been making on average £50 per week for less than 2 hours of effort for quite a long time. Most of the 2 hours is spent on researching offers.

A S&S ISA is risky but so is property ownership. The flat I am currently renting was purchased for £130,000 and it's now only worth £100,000 after 10 years.