Offset mortgage interest vs savings interest

Big.Mxx

Hi can anybody help us,as we don't understand all the different interest calculations, we have an offset mortgage of £30000 at a rate of 1.45% and about the same amount in our account so don't pay any interest each month, having just watched Martin talk about the santander account paying 3% interest does this mean that we would gain 1.55% or are the sums more complicated.
Thanks in advance

Romburner

You are more or less correct. You would have to pay tax on anything over £1000 in interest if you are a basic rate payer, over £500 if you are a higher tax payer - but that is still more interest than you are paying on the mortgage. If you don't need to pay it and can make more than it is costing you not paying it then don't

I am in a similar situation, my mortgage is .75 above BBR (for the life of the mortgage and an offset tracker) so 1.25% at the moment. I have all of the cash to pay off my mortgage but I choose to pay the interest only and move the money around higher rate accounts & ISAs. I'm making more in interest than it is costing me to have the money from my mortgage.

Don't just look at Santander. Their 3% can be easily beaten if you open some of the other accounts available. It just depends on whether you are prepared to open multiple current accounts. TSB 5% on 2K (with a regular saver available), Lloyds 4% on 5K also with a linked regular saver etc etc.

YorkshireBoy

It's a little more complicated than that, because if you withdrew the £30K you'd have to make the mortgage payment from the 123 accounts (you'd need 2), which would reduce your interest earning balance.

I'm in the same boat as you, at 100% offset on an almost identical balance. Mine is 3.75% (BOE + 0.75% with a 3% BOE collar...thanks YBS!), so I've just left it there...and will do until redemption in 2019.

You could make a little money, even after the mortgage payments, in Santander...but you'd make at least 50% more interest by using TSB, Nationwide, and Lloyds instead (both current accounts and regular savers drip fed from the Lloyds accounts).

zolablue25

I also have the offset mortgage at 1.25%. Towards the end of last year I finally managed to get myself motivated to actually do something with the cash that was fully offsetting my mortgage balance. We opened 1 Santander account, which we have put £20,000 in and transferred the DDs that give cashback to help offset the, now, £5 a month fee.In addition we have opened 2 x TSB accounts along with its attached saver, and an M&S account, primarily for its saver and also for the £220 M&S vouchers.

Finally, I have reactivated a dormant Nationwide account and will apply for their saver when I have made payments of £750 in 3 consecutive months (2 months in now).

I have created a flow chart so I can visualise the routes that all the various payments must be made in order to keep the accounts eligible, as I was getting a bit confused!