Any base rate tracker savings accounts out there?

ratechaser

Hi all,

I asked this question 3 years ago and was very helpfully pointed to an Investec 3 year tracker bond that I'd totally missed. Well, that's just matured, and I'm looking to see if there's anything else out there that I can put up to £250k of my unused mortgage into. That's tracking base at +0.5% so really looking for any accounts that track at +1% or better to make it worthwhile.

Any suggestions?

Ta
RC

bowlhead99

Not sure of any decent trackers at the moment but Aldermore has 1.5% on a 1-year fix up to £1m.

That would (at least initially) give you the 0.5% premium over your mortgage rate that you're looking for, and a year is not too long off into the future to lock in, if you fear a monster rise.

Of course, anything can happen in a year but "the market" isn't currently projecting any more rate rises until the last quarter of next year. It would have to go up by two quarter-point ticks for you to not be making money over and above your mortgage (though of course that doesn't take into account your income tax bill on the interest - though neither would a tracker).

Generally you would expect that in a rate-rising environment, a tracker is going to start out a little lower than the equivalent tracker - so with Aldermore being one of the better rates over a year you might struggle to beat it at the start of the term on a tracker basis.

bigadaj

That's a fair way above fscs limits even if it is a joint account.

ratechaser

Bowlhead - if it was just my decision, then I'd probably take the risk on a fixed rate for a year. However the tracker element was what made it possible for me to persuade my (even more risk adverse) wife to go for this bit of arbitrage in the first place. She'd be constantly fretting that rates were about to leap up again. Doesn't help that we come from an age where 15% was considered normal!

bigadaj - agreed, would need more than one account if we were to go over FSCS limits. Another requirement from my DW, although one that I agree with...

bowlhead99

ratechaser wrote: »

Bowlhead - if it was just my decision, then I'd probably take the risk on a fixed rate for a year. However the tracker element was what made it possible for me to persuade my (even more risk adverse) wife to go for this bit of arbitrage in the first place. She'd be constantly fretting that rates were about to leap up again. Doesn't help that we come from an age where 15% was considered normal!

bigadaj - agreed, would need more than one account if we were to go over FSCS limits. Another requirement from my DW, although one that I agree with...

In that case if you (and she) can't be bothered looking around further, and don't want to lock into a long period (ooh, a whole year) in case the rate somehow goes up three times and leaves you paying out more than you bring in - maybe a solution is to put a bit of it in high interest current accounts /regular savers and most of it into NS&I's monthly income bonds. Those pay 1% a year (from December), generally go up with base rates, can give you your money back when you want it rather than being locked in for a year or more, and don't need FSCS protection as they're UK Treasury backed.

Unfortunately at that rate of return you are not making any arbitrage profit because the mortgage also costs 1%. However, depending on your marginal tax rates and how much other interest you get from elsewhere (ie the size of your spare interest allowances) the low interest rate won't cost you a huge amount of tax (£2500 interest between you on £250k).

So, while you might not be able to actually turn a profit from the NS&I account margin over your mortgage - zero % - personally I'd much rather pay a bit of tax to be able to have the security of a monster pile of cash at short notice and owe a mortgage, rather than not owe a mortgage but be unable to access that quarter million quid at will because I paid off the mortgage and we aren't allowed to borrow it back again. There is not a lot of damage done by a mortgage that costs you less than the rate of inflation (4% RPI last year). Few quid a month of tax paid on the NSANDI interest income will not kill you if you have hundreds of thousands stashed for your rainy day.

made it possible for me to persuade my (even more risk adverse) wife to go for this bit of arbitrage in the first place. She'd be constantly fretting that rates were about to leap up again.

Well, last time she let you follow your own advice you got a decent tracker and presumably made some profit which she was happy to help you spend?

Maybe you need to challenge her to explain coolly and rationally (rather than emotionally) why it is super important to be mortgage free rather than maximise your flexibility.

An alternative approach is to get a 10 year fix at 2% ish and then put the money into your pensions or investment funds where you would generally hope to beat 2% a year returns over a decade (especially if you are able to take advantage of the tax efficient nature of pensions). She may recoil in horror at the idea, if she is so risk averse, but that may assist you in then selling the lower-risk solution of the 1yr fix

ratechaser

bowlhead99 wrote: »

In that case if you (and she) can't be bothered looking around further, and don't want to lock into a long period (ooh, a whole year) in case the rate somehow goes up three times and leaves you paying out more than you bring in - maybe a solution is to put a bit of it in high interest current accounts /regular savers and most of it into NS&I's monthly income bonds. Those pay 1% a year (from December), generally go up with base rates, can give you your money back when you want it rather than being locked in for a year or more, and don't need FSCS protection as they're UK Treasury backed.

Unfortunately at that rate of return you are not making any arbitrage profit because the mortgage also costs 1%. However, depending on your marginal tax rates and how much other interest you get from elsewhere (ie the size of your spare interest allowances) the low interest rate won't cost you a huge amount of tax (£2500 interest between you on £250k).

So, while you might not be able to actually turn a profit from the NS&I account margin over your mortgage - zero % - personally I'd much rather pay a bit of tax to be able to have the security of a monster pile of cash at short notice and owe a mortgage, rather than not owe a mortgage but be unable to access that quarter million quid at will because I paid off the mortgage and we aren't allowed to borrow it back again. There is not a lot of damage done by a mortgage that costs you less than the rate of inflation (4% RPI last year). Few quid a month of tax paid on the NSANDI interest income will not kill you if you have hundreds of thousands stashed for your rainy day.


Well, last time she let you follow your own advice you got a decent tracker and presumably made some profit which she was happy to help you spend?

Maybe you need to challenge her to explain coolly and rationally (rather than emotionally) why it is super important to be mortgage free rather than maximise your flexibility.

An alternative approach is to get a 10 year fix at 2% ish and then put the money into your pensions or investment funds where you would generally hope to beat 2% a year returns over a decade (especially if you are able to take advantage of the tax efficient nature of pensions). She may recoil in horror at the idea, if she is so risk averse, but that may assist you in then selling the lower-risk solution of the 1yr fix

Er, ok. Bit harsh, not that we "can't be bothered", more that I was looking for a specific product, and wasn't able to find one so I wanted to check on here that I hadn't missed anything that was out there. I know that base rate trackers can be a bit niche and don't tend to have their own 'best buy' tables.

Anyway, our existing mortgage is a fully flexible offset that runs for another 13 years, so access to the funds is not an issue, nor would I even float the idea of changing it. Given our tax situation, I'm realising that 1.66% gross interest is actually our break even point (versus the current 1% borrow rate on the mortgage), so just to revise my earlier statement, realistically I'd be looking for 2%+ to make it worth the effort of servicing. Investec paid 2.6% for the entire 3 year term, thanks to a floor on the rate, so that was even better when the base rate dipped to 0.25%

So, I'm going to sit tight for now, but thank you for your suggestions. Perhaps when we're a year or two away from being able to access our retirement pots, putting the max in then and subsequently withdrawing an equivalent amount tax free could be another good bit of arbitrage, but that's 10 years away...

bowlhead99

So as you'll be unable to get 2% on a tracker (though 2% on a fix is available, but only for a long term, during which your mortgage rate might creep up), if you are cautious the only thing to do seems to be to keep it in the mortgage offset product for a net zero rather than taxable profit or outright loss.

You mention you might max out your pensions when nearer to retirement. However, you'll be restricted to your earnings of those years (and further restricted by carry-forward allowances if you have high earnings) so the amount you can deploy and then release tax efficiently at that point might fall quite a long way short of the £250k you have available.

In your shoes both being 40% taxpayers if you are not at risk of going over the lifetime allowance it would make a great deal of sense to drop yourselves out of high rate tax by investing good chunk of the money in pensions each year while only paying the 1.66% interest on the funds you do it with.

Bitteswell

The Family Building Society offers a 2 year Tracker Bond currently paying 2.06% (base rate plus 1.56%)