Mortgage Vs Savings

an1dr2ew3

Hi All,

I watched Martin on TV last night but missed parts of it whilst trying to make dinner! I am hoping someone can help with a savings question.

My mortgage is around £47,000 at 1.69% and has about 16 years left to run. A year or so ago I was left around £57,000 inheritance and want to do the right thing with the money.

I have attempted to be clever with the money and make it work for me but I am not sure if what I have in place is actually the best approach. At the moment I have...

Santander account paying 1.5% on the first £20,000

Bank of Scotland paying 1.5% on £5000
Tesco paying 3.0% on £3000
TSB paying 5.0% on £1500
Lloyds paying 1.5% on £5000

First Direct Regular savers 5% on £3600

The remaining £18,900 is just sitting in the Santander account not doing much – (The back accounts have random £1 direct Debits in place making sure I meet their minimum requirements)

Can anyone make any commendations on if the above is the best approach or if there is something I could do to make the money work harder.

My initial thought until last night was to open a M&S, Nationwide and HSBC regular savings account paying 5.0% on a further £9,000 but watching last night maybe a cash ISA would potentially be the best approach?

Lots of individual accounts paying higher interest Vs. a lump sum in an ISA or a combination of both perhaps?

I apologise for the long drawn out post, I hope it makes sense. Any advice would be greatly appreciated.

Many Thanks in advance - Andrew

billy2shots

Obviously you need accounts that are higher in interest than your mortgage to make things work. Your Santander upto £20k and certainly over it isn't working for you and nor would Marcus at 1.5% on the whole sum. No harm in keeping some 'gettable' cash in there though.

For certainty then the Nationwide 5% account upto £2500 and the £250 a month regular saver are the way to go. Have you got a partner as that would enable you to open 3x£2.5k.
M&S warrants opening and HSBC for the regular saver.

The above as you know are all very temporary solutions and involve a fair bit of leg work to setup and adjust every year.

1.69 is a low rate so you should be able to find better longer term savings however you will need to lock that money in to make it worth while. 2 or 3 years really.

Away from certainty is the chance to open a stocks and shares isa (if you haven't got one). Whilst this isn't guaranteed, you would be very unlucky not to earn more than your 1.69 a year averaged over the next 3-5 years.


If it were me (and I'm not recommending you do this) but I would max out a stocks and shares ISA, max out any TSB and Nationwide current accounts, keep the rest in Marcus to drip feed into all the regular 5% savers via the current accounts and have for an emergency fund.
As soon as April rolls around smash another£20k into the sticks and shares isa. £40k invested to grow in a short space of time.

adindas

The interest rate on your mortgage is 1.69% and there are reasonable number of fixed rate saving AC, regular savings, higher interest current accounts are paying 2%+. So if you just see from financial POV and you do not mind to open multiple ac then saving is definitely better.

an1dr2ew3 wrote: »

Hi All,

I watched Martin on TV last night but missed parts of it whilst trying to make dinner! I am hoping someone can help with a savings question.

My mortgage is around £47,000 at 1.69% and has about 16 years left to run. A year or so ago I was left around £57,000 inheritance and want to do the right thing with the money.

I have attempted to be clever with the money and make it work for me but I am not sure if what I have in place is actually the best approach. At the moment I have...

Santander account paying 1.5% on the first £20,000

Bank of Scotland paying 1.5% on £5000
Tesco paying 3.0% on £3000
TSB paying 5.0% on £1500
Lloyds paying 1.5% on £5000

First Direct Regular savers 5% on £3600

The remaining £18,900 is just sitting in the Santander account not doing much – (The back accounts have random £1 direct Debits in place making sure I meet their minimum requirements)

Can anyone make any commendations on if the above is the best approach or if there is something I could do to make the money work harder.

My initial thought until last night was to open a M&S, Nationwide and HSBC regular savings account paying 5.0% on a further £9,000 but watching last night maybe a cash ISA would potentially be the best approach?

Lots of individual accounts paying higher interest Vs. a lump sum in an ISA or a combination of both perhaps?

I apologise for the long drawn out post, I hope it makes sense. Any advice would be greatly appreciated.

Many Thanks in advance - Andrew

DiggerUK

To pay the 1.69% interest on the mortgage, you have to earn at least a fifth on top again to pay the income tax.
You have £30,000 earning less than that, plus £18,900 "just sitting" in an account.

My sums say you have £48,900 available to payoff a £47,000 outstanding debt......excuse me for asking, but why don't you get rid of that debt, free up the mortgage payments, and then come back here to ask if you should buy gold, or start a pension, or invest in some other form of retirement savings plan..._

AnotherJoe

What are you doing for your pension ?

Zero_Sum

DiggerUK wrote: »

To pay the 1.69% interest on the mortgage, you have to earn at least a fifth on top again to pay the income tax.
You have £30,000 earning less than that, plus £18,900 "just sitting" in an account.

My sums say you have £48,900 available to payoff a £47,000 outstanding debt......excuse me for asking, but why don't you get rid of that debt, free up the mortgage payments, and then come back here to ask if you should buy gold, or start a pension, or invest in some other form of retirement savings plan..._

But you get first £1000 on interest free. Which would be 2% on £50k. That would be better than paying off mortgage early. You can get 2.5% on 5 year deals so even if you reduce by 20% you're still getting 2% if that takes you above tax allowance

adindas

DiggerUK wrote: »

To pay the 1.69% interest on the mortgage, you have to earn at least a fifth on top again to pay the income tax.
You have £30,000 earning less than that, plus £18,900 "just sitting" in an account.

My sums say you have £48,900 available to payoff a £47,000 outstanding debt......excuse me for asking, but why don't you get rid of that debt, free up the mortgage payments, and then come back here to ask if you should buy gold, or start a pension, or invest in some other form of retirement savings plan..._

Supposed the OP is paying basic tax rate with this £48,900 (as above), my understanding s/he will not pay tax on the interest earned, given the average interest is 2%.

If s/he a high rate tax payer s/he could always throw it to pension to bring it down to the basic tax rate ?

What I have been missing here ???

DiggerUK

adindas wrote:

..........What I have been missing here ???

Inflation risk with cash. Currently running at 2.3% p.a.

What long term risk is there with a paid off, fully owned property..._

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

Zero_Sum

DiggerUK wrote: »

Inflation risk with cash. Currently running at 2.3% p.a.

What long term risk is there with a paid off, fully owned property..._

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

But that doesnt matter.
If you have x in bank and x mortgage. Then they both deflate equally.
If the cash is earning more interest than mortgage is costing then you're still making money regardless of inflation.

Of course if you fancy a punt & depending on term left on mortgage you could put a bit in S&S ISA or P2P IFISA

fiisch

Personally, I'd pay the mortgage off, if for nothing else the psychological effect. The certainty of bricks and mortar and not having to pay a mortgage again is a nice feeling (well, I assume it is... )

Then, I would look to save at least the amount my mortgage payments were per month - once I had 3 months emergency savings in an easy access account (I favour NS&I bonds for this, as I like a gamble and the opportunity of winning big, but Marcus or similar would also be fine), I'd look to S&S ISA.

For me, fiddling around with high interest accounts to make a couple of quid over your mortgage interest isn't worth the time or the small profit you'd make.

As another poster said, if you're going to do this, S&S is the way to go, but accepting there is a risk you may lose out depending what markets do.

But it's personal choice, attitude to risk and future plans...

adindas

I think keeping cash and inflation is another topics.
But the OP is specifically asking about Mortgage vs Saving

As long you could still get net interest from saving higher than interest from mortgage, saving is better "financially". Psychologically is another discussion.

Having cash / saving, you always have the option
- To put some part of the saving to S&S ISA anytime you want to
- Ready to clear the mortgage when saving interest is already lower than mortgage interest
- Some part of it Could always be put into pension

If you use all of the cash / saving now to clear mortgage which earning less than saving interest you will not have that options again.

DiggerUK wrote: »

Inflation risk with cash. Currently running at 2.3% p.a.

What long term risk is there with a paid off, fully owned property..._

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23