Best home for SBT money?

emh_2

Hi
I am newbie money saver, and wondered where the best home for my super balance transfer money is?

I have £9000 to save for upto a year (unless I move cards around after this time). The tax implications are confusing me in seeing which is the most obvious place to put this money. Is it best in:

mini cash isas (my husband and mine)

regular savings account that Martin recently highlighted (7%)

my childrens savings accounts? (2 children)

or overpay on my flexible mortgage (4.9%)???

hope someone can help?

cheers

Milarky

Childrens accounts don't seem advisable - if only because the children may not understand why you are giving money to them and then taking it away later!

Likewise regular saving accounts only pay the top rate to you on condition that you: 1) make all the payments for a whole year, and 2) don't make any withdrawals during the year [T&Cs vary, but those are major variations]. And you can only build up a balance over time - a real snag.


That leaves ISAs or offsetting on your mortgage...

Good thing about ISAs: up to £3000 x two people allowed on opening

Bad thing about ISAs: still leaves £3000 to find a home for. Accounts can be opened now, of course, and another £3,000 added in 6 months time - so it is quite possible

I prefer your offset mortgage suggestion, however, as you could put everything 'on the mortgage' immediately and [subject to how the thing works] draw off the bulk amount at the end of 12 months or whatever amount(s) you still need to repay at that time.

Robert_Sterling_3

Two times £3000 in no notice ISAs will be an excellent starting point.  

Offset mortgages often have a less than optimum interest rate.
They may sound better than they really are.
The critical factor is the ratio of the amount of mortgage outstanding to the amount of money you can offset.
The lower the ratio the more likely it is to be of benefit and vice versa. A lot of younger people have a very high ratio.

emh_2

Thanks for this Milarky

I can drawdown overpayments at any time on the mortgage, so maybe this is the best place for the money (even though interest is only 5%?)

Its never easy to see the real savings made in paying off some of the mortgage compared to seeing real cash as interest earned in a savings account, but I guess it makes sense.

cheers!

Robert_Sterling_3

I can now see from the above post that you can get 5% tax free via an offset mortgage which is already in place. In this case offset the £9000.

Whilst this is NOW the best thing to do it may still be the case that your offset mortgage was not a good idea in the first instance. I can't say because I do not know the ratio which I mentioned above.

emh_2

I can now see from the above post that you can get 5% tax free via an offset mortgage which is already in place.  In this case offset the £9000.

Whilst this is NOW the best thing to do it may still be the case that your offset mortgage was not a good idea in the first instance.  I can't say because I do not know the ratio which I mentioned above.

Its not an offset mortgage as such, its a discounted tracker product from nationwide, which allows me to overpay upto £6000 a year without penalty. I have two products with them so that is £12k I can overpay a year. Is this different from an offset mortgage and do you still think it was a bad idea (my LTV is about 60%)?


I can't see the difference in benefit between £6000 in cash isas (roughly 5% tax free) or my mortgage (4.9% tax free)??? am I being really dim here?
:-/

Robert_Sterling_3

I know this Nationwide mortgage very well ;D
I like it.
4.95%  £349 Arrangement Fee 2 years.
As you say it is NOT an off set mortgage as such.
It is a pretty even call between a Mini Cash ISA paying 5+% and overpaying the Nationwide Mortgage.
By a short head the Mini Cash Isa wins because you can put the £6000 in TODAY
You could still overpay the mortgage over a period of six months.

The Ratio which I referred to is not the Loan To Value Ratio it is the LOAN to OVERPAYMENT ratio which needs to be low on true offset mortgages.

Nationwide ... Proud to be different

emh_2

Thanks for your help guys.

I need to go and find some on-line cash isa accounts now...

Debt_Free_Chick

I need to go and find some on-line cash isa accounts now...

Remember, that you'll need to withdraw the capital to pay back the card. Once you do this, you will lose this year's ISA allowance i.e. you won't be able to pay in to an ISA again this tax year. (unless you are able to shuffle credit cards and pay off the debt/saving, using monthly repayments on the credit cards).

The only advantage you're getting is that you keep the interest you earn, without deduction of tax. But that's better than you'd get in a conventional savings account.

Jolene_3

I'm looking at using Bradford & Bingley eSaver account as it pays 5.5% and then 0.25 bonus after 6 months.

http://www.marketplace.co.uk/savingsandinvestments/esavings.asp