scotish widows mortgage offset account - any good?

mmoalem

hi there all - just remortgaged with scotish widows (tracker, discounted for 2 years, no penalties at all, repayment mortgage). they have an offset account wich seems interesting:
http://www.scottishwidows.co.uk/bank/mortgages/flex_how_offset_works.html
if i understand it right, in real terms any money i have in my savings account while not earning interest directly will save me the equivalent of the interest rate on the mortgage itself tax free (i.e. if the rate on the mortagae is 5% than it will be like getting 5% tax free interest on my savings) - if you exclude ISAs it seems like the best i can get for my money (assuming i dont mind it covering my loan rather than piling up in my savings account)... am i right? am i missing something?
cheers
michel

nrsql

That's right.
It's usually not a good deal due to the extra interest on the mortgage rate to get the linked product.
Check the rate on the offset product against the one you are getting now and see if the difference makes your savings account a better deal.
Remember that you can usually pay lump sums off any mortgage but it might be more difficult to get it out again.
Also take into account any initial/exit charges.

mmoalem

ok - still not clear about it...
right now the mortgage interest rate is 5.36% now if i understand it right money in the offset account will effectivly earn me that in interest that instead of adding into my savings will pay back some of my loan... if that is ight it is better than any savings account i know of bearing in mind its tax free interest...
also, the money is available to me instantly if needed unlike paying off some of the loan and than asking to borrow more when needed...

nrsql

That's correct.
If you already have the mortgage and can set up an offset account without changing the rate or incurring charges then it'll probably be the best place for your money.

5.36% is a good rate for an offset mortgage.
Natwest for instance are 6.2% for offset and 6.35% - 6.95% for the one account.

Scottish widows looks a bit odd in that the offset account is an optional facility. Can't see any reason not to have one. Looks like if you don't use it it doesn't cost anything but would probably be the best place for savings after a cash ISA.

I take it you have a fixed rate as the current rates are above what you have. The offset is only availabe on variable and 2 year fixed mortgages. If that's what you have it seems like a no brainer. Re-reading looks like you qualify so go for it.