Offset Accounts guide

Offset Accounts

Offset accounts consolidate your mortgage, savings and current account all at one provider, for a better overall rate of interest. You may be able to factor personal loans and credit cards into the mix as well. As the name suggests, offset allows people with mortgages and savings to offset one against the other, thus reducing the amount of interest charged. Savers retain access to their money. When they withdraw the cash, the amount on which interest is payable increases.

Your money goes further

Individuals can effectively earn significantly higher rates of interest on their savings. Standard variable interest rates can be a couple of per cent above savings rates. And you usually have to pay income tax on savings interest - not so savings made on the mortgage. For a higher rate taxpayer offsetting savings against a 6 per cent mortgage product, this is equivalent to earning 10 per cent on savings. Products can be flexible, allowing individuals to pay down chunks of the mortgage and borrow back, and making them suitable for self-employed individuals, with less predictable cashflow.

 

Drawbacks

However offset isn't for everyone. For a start, providers don't normally offer their best mortgage deals to offset customers. Borrowers will often find themselves better off with a more keenly priced fixed rate or discount loans. After all, mortgage debts are often much larger than any savings have available to offset! Also consolidating the different products with one financial provider can be a pain, and some people may fight shy of putting so many eggs in one basket. Some providers prove notoriously inept, when customers attempt to switch current accounts. Remortgaging the home with an alternative company is time-consuming, although ultimately rewarding for many.

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UK Investments - Financial, Property & Other Investments - 1998-2008

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