Offset flexible mortgage

KiKi

Please could I sanity check my understanding with others before I go ahead with the following?

I've maxed out all the bank accounts and regular savers over 2.1%.  I've maxed out my cash / S&S ISA allowance.  I'm a 40% tax payer.  I have no loyalty(!) and move accounts regularly to get the best interest rates, and so earn c£1200 a year in interest.  Next financial year, my regular saver and bank interest alone will take me to the £500 mark, so any interest over that will incur 40% tax.

My plan is to move anything that's in an account earning less than 2.07% interest - and which I don't need immediate access to - to my mortgage offset savings pot.  My mortgage rate is 1.24%, and I can overpay as much as I like each month, and make one off deposits. 

My rationale is that although I won't earn interest on those savings, I save the same rate in interest by not paying the 1.24% on that equivalent amount of my mortgage.  Whilst there are savings accounts with better rates, the 40% tax on interest I'll have to pay means a 2% regular saver, for eg, is effectively a 1.2% interest rate.  So anything earning less than 2.07% (the non-taxed equivalent of my mortgage interest rate) is better off in my offset pot.

Have I calculated / understood that correctly?  Thanks if anyone can advise.    (To clarify, I already pay to pensions, an S&S ISA, and am not looking to do anything with this cash other than get the best interest rates in savings without locking it away for more than a year.)
KiKi
 

amnblog

Yes Kiki. You’ve got it.

getmore4less

Pension is often a better place for excess income 

csgohan4

getmore4less said:

Pension is often a better place for excess income 

Unless you start to hit your AA or lifetime limit, then S+S ISA are the common investment vehicles 

Mac5

Hi - you are in a great position and I concur with all the above responses. You don't mention the size of your mortgage but although you make clear you can pay lump sums off anytime I'd also do this now simply for 2 reasons;
 1 it would reduce the complexity of managing all these savings accounts and 
 2. it's a great feeling when you chip away at a mortgage and the peace of mind when it is finally no longer. 
Best regards 

KiKi

amnblog said:

Yes Kiki. You’ve got it.

Short and sweet - thank you!

getmore4less said:

Pension is often a better place for excess income 

Thanks, but I will need access to the cash next year for a house purchase.

Mac5 said:

Hi - you are in a great position and I concur with all the above responses. You don't mention the size of your mortgage but although you make clear you can pay lump sums off anytime I'd also do this now simply for 2 reasons;
 1 it would reduce the complexity of managing all these savings accounts and 
 2. it's a great feeling when you chip away at a mortgage and the peace of mind when it is finally no longer. 
Best regards  

1. I like the complexity; I am Queen of Spreadsheets.  It's almost a hobby, now. 
2. I plan to move house in the next year.  So - rightly or wrongly - I want to feel more satisfaction at paying that one off in lump sums rather than this one.  But point taken - and that's probably what I'll do when I move, and pay off chunks off that instead.  I'm used to having a large cash pot at the moment; putting it into my mortgage goes against what I'm used to, but that's not to say I shouldn't look at it.  If the rates go up (it's also a tracker!) then I'll definitely put money into it, assuming savings rates don't go up at the same rate.  

Thank you all, much appreciated.
KiKi

kempiejon

KiKi, I'm moving to an offset from a fixed rate mortgage when it ends in July and in preparation I've been gathering cash ready to offset the full amount, I could pay off the mortgage, invest the money or add to my SIPP but like you I like the idea of potentially accessing the cash at a later date should I chose to move. I agree with your plan too.

KiKi

kempiejon said:

KiKi, I'm moving to an offset from a fixed rate mortgage when it ends in July and in preparation I've been gathering cash ready to offset the full amount, I could pay off the mortgage, invest the money or add to my SIPP but like you I like the idea of potentially accessing the cash at a later date should I chose to move. I agree with your plan too.

I looked at moving to fixed rate at the end of last year when I thought rates might go up, but I'm now thinking they're more likely to drop, so I've stayed where I am!  The tracker rate I have is very favourable, so giving up this mortgage isn't something I'll do lightly.  Poor lender; they make so little from me!!