Savings interest on larger balances?

jm78

bowlhead99 wrote: »

National Savings & Investments monthly interest bonds - pays 1% and government backed.

Now that all my higher interest bonuses have expired, I'd love to get my savings out of the banks and put them in NS&I monthly interest bonds, but is this advisable longer term given the lack of compound interest? Is there any clever way around this, like some way to reinvest the interest?

bowlhead99

Yes. Re-invest the interest. Or leave the interest earning interest in one of the accounts that pays a decent rate on small amounts and hasn't expired.

Mr.Boy

I had initially thought I want to keep the cash instantly accessible but on reflection it seems to me that paying off mortgage debt would achieve the same thing - when I move house the cash tied up in my home is realised at exactly the right time?

My mortgage rate is currently 1.34% (until May) so is it correct to say that paying off a chunk of this is basically the same as investing it somewhere that pays me 1.34% interest as my mortgage bills fall? Because 1.34% is pretty decent in relative terms.

bowlhead99

If you pay off your mortgage you save interest that you would have had to pay out of your after-tax salary. So it is like receiving 1.34% savings interest after tax (assuming there's no "early repayment charge" to spoil the party).

If paying off a huge wodge of the balance you might even drop an LTV category and qualify for an even better rate on the remaining balance if you do a quick remortgage, ie saving interest on the bit you haven't even paid off yet.

The difference of course is that if some unexpected event crops up, and you want to get your hands on (e.g.) a few thousands or tens of thousands which you paid off your mortgage early, the only way to do it may be to ask for a remortgage which requires credit check /affordability, potential fees, risk that the low 1.34% rate may no longer be available, etc etc. This may not be suitable for some people.

In your case it seems like you will be selling the house pretty soon so will get access to the 200k again. Hopefully there is no problem selling it quickly and your plans don't change.

Mr.Boy

The mortgage is for £165k and the house was bought for £235 (on sale for £260k) so my inclination is to pay off £100k - I then have substantial cash left but also benefit from effectively getting 1.34% on £100k which isn't bad.

Good thinking - I'd never considered the LTV band change; I've no idea what's on offer but my mortgage has no over-payment or termination penalties. Although I can't see much better than 1.34% being on offer?!

The current discounted rate runs to May when we hope to have moved already. I hadn't thought that it made any sense to remortgage when we only expect to be here 6 months at most, my fear would then I might get stung for early termination. I suppose it can't hurt to have a quick look around.