What to do next with savings? Mortgage overpayment or Invest

kelly_b_1982

Hi

I’ve been looking for some advice regarding my savings and I was signposted to this forum by a friend.

My savings are currently split between a fixed rate bond and a cash ISA, both coming to the end of their 1 year term next week. I have £24k in the ISA and the bond will mature with £20.5k (which incls the interest I gained). I also have around £1.5k in a current account. So total of £46k. My partner has around £20k in savings (ISA), plus a share portfolio. 

We have just over a year left on our current 2 year fixed rate mortgage which is at 4.67%. Other than the mortgage, we have no debts, nothing on finance, loans etc - just the mortgage. We made some mortgage overpayments last calendar year, but none so far this year. 

With my savings accounts coming to term soon, I am a bit lost as to what is best to do next. From what I can see the best 1 year fixed bond with a high street bank at the moment, is Virgin money at 4.5%. So less than the mortgage iterest rate.

I am wondering if we should do a lump sum overpayment on the mortgage before the end of the year of £6k, potentially £10k. Keep the money that is in the ISA in an ISA and what is left invest on a S&S ISA. Alternatively put £21k back in a fixed rate bond to max out my PSA, pay £6k off the mortgage and leave £17.k in my ISA, but it is a no-no to take money out of an ISA? I would also really like to move some money in to a S&S ISA and start exploring those types on investments now too. 

Any advice appreciated.

AlanP_2

To start with make sure you are clear on the difference between saving and investing and then think about overall situation, priorities and timescales.

You haven't mentioned your ages, employment situation, pension provision, tax rates you pay, when you might/will spend the money etc.

All of those aspects could affect suggestions made on here and help to inform your own thinking.

If you are 57 and plan to retire in 3 years with a £750k pension pot accrued already you are in a different place to someone in their 20s with minimal pension and 30 to 40 years working ahead of them.

kelly_b_1982

Sorry @AlanP_2, good point!

We are both early 40s. My partner is a higher rate tax payer and I am basic rate. I work 3.5 days a week as we have young children. My partner is on track for a very comfortable pension. For various reasons my pension pot is very very minimal (<20k). For the last year I have been paying 8% contributions though, which my employer matches. Our household net monthly income is £7k. 

kelly_b_1982

We have around £120k equity in our home at the moment but we will likely move to a larger family home within the next 5 years, so some of our money will need to go towards that home move and the deposit. 

Sam_666

And your state pension records are upto date, no  missing years?
You got until april to fill gaps.

eskbanker

Sam_666 said:

And your state pension records are upto date, no  missing years?
You got until april to fill gaps.

Sort of - after April 2025 it'll still be possible to fill gaps but only those from the most recent six years.

masonic

kelly_b_1982 said:

We have around £120k equity in our home at the moment but we will likely move to a larger family home within the next 5 years, so some of our money will need to go towards that home move and the deposit. 

You should not invest money that you will need towards the home move, as you won't have a long enough time horizon to ride out any stockmarket turbulence. This is money that could be used for mortgage overpayments, given the relatively high rate of interest vs savings. With any excess cash, it probably would be worthwhile dipping your toe in the investment waters. It is good to get some experience on a small scale so that it isn't so daunting when you are in a position to invest more. Your pension pot will be invested, so a S&S ISA will be in addition to that, and best used for funds you think you may need to access before your pension becomes available.

HedgehogRulez

Pension is the correct answer

Alexland

Is your partner's pension enough to give you both a comfortable retirement? Are you sure your interest in it would be covered by the scheme rules under all scenarios? As you say your pension is negligible for your age but perhaps you anticipate inheriting or be gifted some money? You may need to balance the desire for a bigger house against increasing your pension contributions to catchup.

kelly_b_1982

Thank you all for your insights, it's very much appreciated!

I did check my NI contributions last year and I should be on track to receive the full state pension, but I will double check again before April. 

I am the named beneficiary on my partners pension but I don't know all the terms and I should definitely look in to that further.

No, I do not expect to inherit or be gifted any significant amount of money.

We will need to move as our current home is not really sufficient for us as a family home. So rather I should have said we need to upsize to a family home, as opposed to just moving to a bigger home. We are careful and considered with money though and would not purchase anything unnecessarily big or expensive.

Our net household income is actually nearer the £7.5k a month mark, as I forgot my partner has a bonus. This will also increase in just over a years time when he will not need to sacrifice as much in to his pension in order to keep his income under the threshold for childcare hours. We certainly need to sit down and figure our our monthly outgoings and how much of this we can save each month, it certainly should be £2k/£2.5k though. 

So should be thinking to use my savings to make a one-off overpayment on the mortgage and also a lump sum payment in to my pension? I did make a small lump sum payment in to the pension last Dec. I actually could pay at least an extra £300 a month in to my pension. But if it is not employer matched, is it worth doing this or putting that £300 elsewhere? If I do put it in to my pension, is it better to do this as one off payment at the end of the year (and have it in a savings account until then) or do it monthly? The same with the mortgage, are one off payments better or monthly? 

Thank you

Hoenir

At what age will your mortgage be paid off ?  Both currently and after you've upsized. Life has a habit of throwing curved balls when you least expect them. Owning you home outright is for most people the best security they can have.