How much interest do I owe my son? His savings used to offset mortgage

Whelky

I have an offset mortgage. I have used my child’s savings to offset to pay less interest. He’s now 18 and I want to give him his savings pus a fair interest ie what his pot would be worth now if he’d put it in a saving account and benefitted from compound interest etc.

How do I go about calculating? Is there a formula? Amounts would have been paid in various years so. Say £5k went in when he was born, then say an additional £300 each year… for % interest though I’d use the base rate (unless you’ve got a better idea!)

Thank you

flaneurs_lobster

Very roughly, £5K + £300/yr for 18 years, average interest rate over the period 3%

£15.5k

masonic

If you wanted to give him the same amount back in real terms, you'd be looking at £15.6k index linked to CPI (based on the value of each contribution when it was made in today's money). Retail savings rates usually allow one to stay slightly ahead of inflation, but not by much.

Whereas index linking to the more generous RPI measure it would be £17.6k.

The best he could have achieved probably lies between those two figures.

Bobziz

https://monevator.com/compound-interest-calculator/

£15,747

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6654421/how-much-interest-do-i-owe-my-son-his-savings-used-to-offset-mortgage

Your child is loving the way these replies are going 😄

born_again

How much interest have you saved on mortgage? Then add 10% for the cheek of using their money to save you money 🤣

kinger101

I think the son would have invested in a combination of bitcoin, NVIDIA shares, really insightful six horse accumulators and a winning euromillions ticket so let's call it £6 Bn.

I reckon if you ask him nicely, he might pay off your mortgage for you with that.

silvercar

Are you going to be giving him more than you have saved by having an offset? Step 1 would be how much have you saved vs having an ordinary repayment mortgage. Is that more or less than he would have got had he invested the money?

silvercar

Remember you want to be gifting your son this money, if you call it interest it becomes taxable with the interest allowance only £1k.

subjecttocontract

Am I the only one that finds the whole premise of using interest from a child's account to benefit family members uncomfortable ? It just doesn't sit right for me.

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/81875991#Comment_81875991

Don't think it was just the interest (amounts of which would have made a trifling difference to mortgage repayments) but the actual capital.