ISA, pension or mortgage?

Mrdiscoman

I currently have around £50k in savings, £45k of which is in an ISA with a 0.05% rate. My wife and I have joint mortgage with £108k left to pay over another 15 years with a 1.56% fixed rate for the next 4 years. 
Im in my late 40's and only have a small private pension pot, a works one I've paid into for 5 years and a previous one with around £15k invested. I've worked since I was 16 so all NI is up to date.
Should I use my savings or around 90% of it to either:
A; pay a lump off the mortgage?
B; pay a lump sum into a pension
C; invest elsewhere?

Dazed_and_C0nfused

Are either of you higher rate taxpayers?

dunstonh

Paying extra off the mortgage is likely to be the least sensible seeing as it just 1.56% fixed.   Pension is lacking and you seem a long way behind on that.   So, that could do with some work.     Overall not much to go on but we can certainly see you have a planning shortfall for retirement. 

barnstar2077

If you are using a cash ISA then you are effectively losing money.  I would pay a proportion of your savings into a pension, put an emergency fund in premium bonds, and then split future contributions between a pension and a Stocks and Shares ISA.  Vanguards own platform with a lifestrategy fund is a good place to start your research for the S&S ISA. 

csgohan4

Always emergency funds first, at least 6-12months living costs then any spare, LISA/Pension, Isa in that order

daveharruk

Really B and C are the same thing. If you want to save for a rainy day, can you do that by overpaying your mortgage? Vanguard is fine for smaller amounts and if you want to use a buy and hold strategy, but it isn't really suitable for active investment, as there is no stop loss facility, so you would be at risk if/when markets fall significantly. I would suggest Trading 212 as not only do they have a stop loss facility and free trading, but they have a wider choice of shares and funds than Vanguard including things like Scottish Mortgage Trust which has a long history of outperforming the market as well as Nasdaq and S&P trackers and other current hot ETFs like iShares Global Clean Energy and precious metal ETFs. They will also be launching a SIPP soon, and they have a wider range of instruments to trade than their nearest competitor (FreeTrade).

DiggerUK

Pay off the mortgage ASAP, check your t&c's to see if it reduces payments immediately , if not, then hold the cash in highest paying a/c you can find till then.

I reckon you could be mortgage free in 6-7 years quite easily, then you will have a bigger cash flow to allow you to put extra by for retirement. Best of fortune..._

Albermarle

I currently have around £50k in savings, £45k of which is in an ISA with a 0.05% rate

Separate from your other decisions. Basic rate taxpayers can earn up to £1000 in interest without paying tax . So for most people an ISA is no longer necessary for cash savings ( still useful for Stocks and shares though).

You can earn up to 0.6% in an easy access account , around 1 % in a fixed rate account and around 0.8% with premium bonds .

Compare The Best UK Savings Accounts | moneyfacts.co.uk

daveharruk

DiggerUK said:

Pay off the mortgage ASAP, check your t&c's to see if it reduces payments immediately , if not, then hold the cash in highest paying a/c you can find till then.

I reckon you could be mortgage free in 6-7 years quite easily, then you will have a bigger cash flow to allow you to put extra by for retirement. Best of fortune..._

Although I appreciate the psychological advantage of being mortgage free earlier, if you are only paying 1.56% on a mortgage, then overpaying large amounts (i.e. more than you would need as a safety buffer) just doesn't make sense - it makes far more sense to invest. Vanguard are predicting 5-7% return for global equities over the next decade - so while this is not guaranteed, that does give you a good idea what to expect for a globally diversified portfolio.

barnstar2077

daveharruk said:

Really B and C are the same thing. If you want to save for a rainy day, can you do that by overpaying your mortgage? Vanguard is fine for smaller amounts and if you want to use a buy and hold strategy, but it isn't really suitable for active investment, as there is no stop loss facility, so you would be at risk if/when markets fall significantly. I would suggest Trading 212 as not only do they have a stop loss facility and free trading, but they have a wider choice of shares and funds than Vanguard including things like Scottish Mortgage Trust which has a long history of outperforming the market as well as Nasdaq and S&P trackers and other current hot ETFs like iShares Global Clean Energy and precious metal ETFs. They will also be launching a SIPP soon, and they have a wider range of instruments to trade than their nearest competitor (FreeTrade).

No, this is not a good idea for the average person.  A globally diversified multi asset fund like the Lifestrategy funds are perfect for beginners, or for those that do not have the time to spend doing research on individual sectors, regions, or companies.  You don't need a stop loss facility because you are not trying to time the market, you are investing for the long term and any dips just means you are buying cheap for a time (as many of us did this year.)  Investing in the latest hot managed fund is a great idea until it isn't.  It has been proven that long term passive investing is the safest, most reliable way to invest.  Even Warren Buffet says so.  The average person should keep things simple, or at least start out that way.  They can always branch out a bit later on once they have a solid backbone to their finances (and even then it isn't necessary.)

AnotherJoe

daveharruk said:

DiggerUK said:

Pay off the mortgage ASAP, check your t&c's to see if it reduces payments immediately , if not, then hold the cash in highest paying a/c you can find till then.

I reckon you could be mortgage free in 6-7 years quite easily, then you will have a bigger cash flow to allow you to put extra by for retirement. Best of fortune..._

Although I appreciate the psychological advantage of being mortgage free earlier, if you are only paying 1.56% on a mortgage, then overpaying large amounts (i.e. more than you would need as a safety buffer) just doesn't make sense - it makes far more sense to invest. Vanguard are predicting 5-7% return for global equities over the next decade - so while this is not guaranteed, that does give you a good idea what to expect for a globally diversified portfolio.

Plus you arent letting inflation do its job of effortlessly reducing your mortgage. Nor are you getting a tax break.