Best option for my savings?

adamck

hi guys,
I wanted to get some opinions on the best place to put my savings of around £20,000.

im 36, my mortgage has about 20 years remaining.
im currently 1 year into a 5 year fixed deal at 1.09%.

I can overpay my mortgage by about £20,000/ year.

Am I best overpaying my mortgage in the assumption this will likely go up in 4 years?
Or do I put it into a savings account fixed for a couple of years, hoping that the mortgages rates have leveled back back and come down again by then?
Or can I make more with a bond / investment?

or do I wait to see if interest rates go up even more and tie into a high interest fixed deal when it goes up more?

any advice would be welcomed!

I know nothing is guaranteed and a lot of this is crystal ball guesses at the moment with the way markets are changing.

just feel like my money is wasted in my current account and don’t want to miss out of potential interest or savings.

jimjames

If savings rates are 2.75% and your mortgage is 1.09% then it's pointless overpaying when you can make more by savings. It doesn't need a crystal ball or anything, it's guaranteed to give a better return. You can always pay off that section of the mortgage in 4 years when the rate ends.

Bigwheels1111

You could get a 4 year fixed at 5.05% today. Gatehouse bank.
Thats almost 4.5 Times the rate you are paying.
Save save save until remortgage and the pay off the 80k plus you have saved.

Daliah

Are you a BR or HR tax payer? Worth looking at putting the money into an ISA if you are likey to bust your personal savings sllowance

adamck

I’m HR tax payer, I assume an ISA would be better than a fixed savings account? 

lohr500

I agree with @Bigwheels1111 Put the cash into a 3 or 4 year fix.

An investment is a gamble and who can say what the £20k may be worth in 4 years time. In theory, if you invest now when the markets are low, then hopefully things will improve over the 4 year period. But who knows.

*****

It also depends if you have any other taxable savings in place. As a higher rate tax payer, your personal allowance is £500

With no other taxable savings, as an example, if you put the £20k into a one of Martins best paying 3 year fixes, you could get 5% p.a. With compound interest you would end up with around £3230 total gross interest after 3 years.

But after your £500 a year allowance you would face 40% tax on £523 end year 1, £576 end year 2 and £630 at end of year 3. Tax = £692. Net interest £2538.
 
His best 3 year cash ISA table shows 4.35% as the best interest on a 3 year fix. At the end of the three years you would have £22,725. Net interest £2725.

So with no other taxable saving liabilities, in the above example you would be better taking the fixed cash ISA over the fixed savings. 

Personally I would put the £20k into the best easy access a/c today (Skipton BS 2.55%) and sit tight until early November to see what happens with interest rates. Most of the speculation suggests that they will increase further after the Bank of England announcement during 1st week November.
This is what I am doing, in the hope that the current best fixed cash and cash ISA rates increase a little more. Then I'll pull the trigger. I don't intend to wait beyond the middle of November though, as my fear is that if I put off the decision for too long, then rates my drop. But again, who knows.
 

*** EDITED FOLLOWING Dazed_and_C0nfused input.

Dazed_and_C0nfused

It also depends if you have any other taxable savings in place. Your personal allowance is £1000.

The op said they are (already) a higher rate payer so they will only have £500 of taxable interest which gets taxed at 0%.

And this can add to your overall tax liability in certain situations.  Which may or may not be relevant to the op.

HICBC can increase by 5% with £500 of taxable interest.  And the Personal Allowance can be tapered by £250 where ANI is in the range £100k - £125k.