Low risk investment/s or save cash

Stevensuperbike

Hi good evening this is my first post from a new user. There seems to be a large amount of advice out there re investing , internet sources, friends, family, colleagues ect. Many of which is conflicting or personal opinion. In the next few months me and my wife and 2 kids will be hopefully saving between £1800-2000 a month. Our current mortgage stands at £105k (currently on a fixed rate of 2.46% for the next 4 years.) our intention is to save the money every month for 4 years and then pay the mortgage off hopefully when the mortgage drops onto a svr.
My questions is would it be worth saving the money in the bank at zero risk or placing the money into a investment to hopefully increase its value through the duration of the 4 yr term? I would greatly appreciate some advice on the matter. If we do save the cash in the bank on a plus note it remains disposable if needed rather than locked away. Many thanks in advance.

wearethedogs

Can you make overpayments on your mortgage without penalty? If so you would be better making monthly overpayments

Stevensuperbike

Can only make 10% overpayment without penalty which wouldn't be much. The penalty is £50 per £1000 overpaid over the allowance as in yr 1of 5 in the fixed rate. Next year would be £40/£1000, yr 3- £30/£1000 and so on.

Stevensuperbike

I roughly worked out my overpayment charges could amount to between £2-3k over the 4 yr I intend to keep paying...

masonic

In the first year you pay a £50 penalty on a £1000 overpayment, or 5%. If you didn't make the overpayment you'd pay 2.46% interest for 4 years (about £100), presuming you pay off the mortgage at that point as you plan.

So you can pay the £50 penalty or the ~£100 interest, but if you don't overpay you could potentially earn more than the difference in a fixed rate savings account, or a high interest current account/regular saver if you've not already exhausted these with savings.

Alexland

If you are really determined to pay this money towards your mortgage in 4 years that isn't really a suitable time period for S&S investment as the markets go up and down and you wouldn't want to withdraw at a loss.

However if you were more flexible then over the long term then investment gains have generally outperformed low mortgage interest rates.

Alex

xylophone

Have either of you ever had a Nationwide Flexdirect current account?

You might also try for a joint HSBC Advance current account and a joint First Direct current account.

You might open a "donor" joint account that you could switch to a Marks and Spencer current account.

All the above have regular savers and the Nationwide also has the privilege rate on the current account itself for one year.

Could you easily reach a branch of Kent Reliance, Saffron BS or Virgin Money? These, too, have RS worth considering.

Audaxer

Stevensuperbike wrote: »

My questions is would it be worth saving the money in the bank at zero risk or placing the money into a investment to hopefully increase its value through the duration of the 4 yr term?

Four years is far too short a term to consider investing it, as there is a good chance the value of investments will fall within the 4 year period.

I agree that it's good to try and get the mortgage cleared as soon as possible, but there may be a good argument for investing the bulk of the £1,800/£2,000 per month for long term gains, and keeping the mortgage going longer. However it depends on your circumstances.

Thrugelmir

Stevensuperbike wrote: »

Can only make 10% overpayment without penalty which wouldn't be much.

Acorns grow into oak trees. Take the long term view. Pay down the mortgage by whatever you can.

Stevensuperbike

Many thanks for all the helpful replies. Much appreciated. I could always ring lender before roll onto next year mortgage and ask for a value I can overpay without charge. Then extract the money from the savings and pay the most I can without penalty.

TheShape

Stevensuperbike wrote: »

Our current mortgage stands at £105k

Stevensuperbike wrote: »

Can only make 10% overpayment without penalty which wouldn't be much.

Often (perhaps usually?) the amount you can overpay is related to the outstanding balance. A 10% overpayment in your case might be £10.5k. Not much?