Savers these days are battling with the twin terrors of low interest rates and high inflation.
To beat inflation, a basic-rate taxpayer at 20% needs to find a savings account that pays 6%, while a higher-rate taxpayer at 40% must earn at least 8%. But the average no-notice savings account pays only a miserly 0.93%.
There are a couple of savings accounts with an interest rate of more than 6%, but both come with a raft of restrictions.
The lack of a decent savings account might tempt some people to give up. Why not spend your money if there is no advantage to stashing your cash? But before you set off on a shopping spree, remember there is another way to save – overpay your mortgage.
If you think about it, paying off your debt is just saving in reverse. And with interest rates so low, now is the perfect time to whittle down your mortgage debt.
Let’s be honest, most of us could afford to put a bit more towards the mortgage each month, and a little can make a big difference.
Let’s say you’ve borrowed £150,000 at 4% over 25 years. If you overpay by £50 a month, you would pay the mortgage back two years and four months early, and save more than £9500 in interest. It’s also a great way to build up a cash cushion in case interest rates rise in the future.
Most mortgages are flexible enough to allow overpayments, but always check with your lender first. In some cases, penalties apply if you pay off the loan early.
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