Savings % rate higher than Mortgage % interest rate

[rickbrown74]

Thought I'd sound this out just cause it sounds to good to be true.

I currently have a mortgage which says its rate is 1.49%. Santander have tempted me with their 123 account which apparently pays 3% on balances over £3000 up to £20000. Are those percentage rates genuinely like-for-like percentages?

I've been overpaying my mortgage to date but surely now I should stack up my current account to get a better return, or even look for a different investment avenue.

What way should I invest my money, given the low mortgage rate, cause I can even get a big wodge of cash back out of my mortgage to invest if necessary?

[RizzoTheRat]

Yep, I've got the 123 current account and credit card, and my mortgage is a building society they own, so they pay me 1% cash back on my mortgage as well as all the other cash backs, plus the interest.

Bear in mind you're taxed on income on the savings, while relief on the debt interest is effectively untaxed, so that 3% is more like 2.4% if you're a basic rate tax payer, or 1.8% if you're on the higher rate. However it's still more than my mortage so I don't overpay at all and keep as much in my current account as I can.

ETA: there's a £2/month fee for the account so don't forget to take that in to account when working out any saving, they've got a calculator on their website to get an idea of the other cashbacks you get, but I get £4/month from my utilities, council tax, and phone/tv bills, which more than pays for the fee.

Edited by RizzoTheRat on Wednesday 19th February 14:44

[rickbrown74]

Thats a good help thanks.

I'm lower rate tax so thats not too bad, plus they have projected (along with the usage of the credit card)that I could make £25 per month on teh account regardless of interest on a lump sum.

I'm usually very skeptical of these things but this really does seem like a good deal overall.

[RizzoTheRat]

I must admit I was sceptical to start with, as I hate paying for things like bank accounts and credit cards when other supply them for free. It was the 1% cashback on my mortgage that swung it for me, but even without that it would be a good deal. The staff in my local branch are really helpful and they've got a decent online banking system. The nearest thing to gripe I have with them is I have 3 accounts with them and if I use one of their cash machines or an overseas one it asks me which account I want to take the money from regardless of which card I use. Not an issue in the UK but the foreign machines only give the account type not the account name so it's easy to get the wrong one.

[oyster]

rickbrown74 said:

Thought I'd sound this out just cause it sounds to good to be true.

I currently have a mortgage which says its rate is 1.49%. Santander have tempted me with their 123 account which apparently pays 3% on balances over £3000 up to £20000. Are those percentage rates genuinely like-for-like percentages?

I've been overpaying my mortgage to date but surely now I should stack up my current account to get a better return, or even look for a different investment avenue.

What way should I invest my money, given the low mortgage rate, cause I can even get a big wodge of cash back out of my mortgage to invest if necessary?

This is very sensible, but please remember about tax.
If you're a top rate taxpayer then 3% gross becomes only 1.65% net (1.8% and 2.4% for basic and higher rate taxpayers).

My mortgage rate is just a little bit below yours and I'm following a similar policy. Instead of paying off the mortgage, I have a fixed cash ISA of 3%, some invested in 5% yielding shares and am thinking of opening a Santander account to get some extra up to that £20k limit.