Overpayments vs S&S ISA (20 year period)

poppy10_2

Linton wrote: »

Regular Saver account - high interest bank account with requirements/limitations provided by banks as a loss leader to attract customers.

Most of them have very low limits. HSBC only let you put in £250 a month for their 5% regular saver account. So you end up with just £3000 at the end of the year, and the effective interest rate is just half the headline rate as you only have the full £3000 amount invested for the final month. So £75 for a year. Hardly a substitute for a sotcks and shares ISA

Peelerfart

Have you posted the same question on the mortgage free wannabe board? Just for some balance.

AnotherJoe

Why not a pension ? Especially if you are a high rate taxpayer that beats an ISA hands down.

Spangled

Could you split your £220pm overpayment thus: £110pm remains as monthly mortgage overpayment plus £110pm into a stocks and shares ISA. In other words, don't put all your eggs in one basket.

mameha

To answers Qs above:

I have a pension separately which I contribute maximum I can (employer matched).
We have some money we use as emergency cash, this is currently tied up in savings with low interest hence the idea to put in an S&S ISA to get better return and be able to use towards the mortgage or as emergency money. Pension would not allow me to withdraw without penalty.

My mortgage is already repayment, not interest only, so I am already paying off the loan but it is now a 31 year term rather than 25 which I would prefer. (220/m overpayment will reduce term to 25 yrs).

I am now trying to get my head around Bonds and Gilts as these seem to be less volatile and ideally I want 6% ish returns with less risk attached. I see many funds related to gilts/bonds but I cant understand why the fund price goes up and down and whether the yield is included in the annual return - if the fund is up "2%" over 12 months, does this include the 4% yield (ie -2% return + 4% yield = 2%) or not (ie. 2% return + 4% yield = 6%).

System

mameha wrote: »

I then realised this is why people get an 'interest only' mortgage, as the return would be even greater.

Whilst that should be the case the reality is that really they don't. They get them because they can't afford a repayment mortgage and don't actually put anything into an investment because the money isn't due for another 25 years which is ages away and its something they'll get around to in the future. Very few people actually invest in something that'll repay the capital at the end of the mortgage.

MallyGirl

mameha wrote: »

I am now trying to get my head around Bonds and Gilts as these seem to be less volatile and ideally I want 6% ish returns with less risk attached. I see many funds related to gilts/bonds but I cant understand why the fund price goes up and down and whether the yield is included in the annual return - if the fund is up "2%" over 12 months, does this include the 4% yield (ie -2% return + 4% yield = 2%) or not (ie. 2% return + 4% yield = 6%).

This paragraph rings alarm bells. 6% is quite ambitious for low risk investment. If you want a lower risk option, as an inexperienced investor, I'd go for a low cost multi asset fund with a relatively low equity percentage. Several get mentioned on the savings and Investment board - Vanguard Lifestrategy 40 or 60, HSBC Global Strategy Balanced, there are others. That way you don't particularly need to understand things like bonds and gilts.