£200 pcm into 5% saving account, or to mortgage over payment?

snickpan

Santander take £200 a month for a saving account with 5% interest.
If I put that money to mortgage overpayment it'll save me £81K of interest (only) payments over 23yrs.

Is the overpaying option the best? Mortgage is £281866, 3.2% interest.

snickpan

I've just done some more sums, I wasn't confidant but gave it a go.
Santander savings:
£200 a month, £2400 a year, 5% interest, I think, gives me a total of £2448 a year in the account.
If I keep that up up for 23years (mortgage term), I'd have just over £56K.
If that £200 were to go to mortgage overpayments for 23 years, it would save me £81K.

Is it a no brainer, have I missed something?

(Santander saving plan is a 1 year thing only, so after 1 yr, you get your interest payment, with an option to start again)

runninglea

quickly done a calculation and £200/ month for 23 years would result in just over 103K.

Money in year 1 would have 22 more years at 5% interest

Tropically

If you are talking about the Santander Regular Saver, you don't really get to benefit from compound interest.

You can put it £200 per month, and then after a year, you have to withdraw all the money and start again with £200. You will get £64 in interest plus your £2400 back. You have the yearly math correct and you'd have just over £56k. Most of this you will have saved outright and the interest earned in total will be only around £1k. What will you do with the £2,464 each year that you'd get back?

With respect to the second question - do you have an interest only mortgage? You wouldn't earn that £81K in interest avoided (because you'd be paying £200/month for it) but you would save around £30,000 in interest.

You could save in the Santander Regular Saver and then after you get the £2,464 in your regular account, you could apply that to the mortgage to benefit from compound interest on it.