Over the last ten years, savers would have been better off by placing their savings in a offset mortgage account, rather than a cash ISA.
First Direct has published a study that shows those with a cash ISA account and a mortgage would be better off if they had placed their maximum cash ISA money into their an offset mortgage account instead.
They would be better off by up to £3,306 over the last ten years, the study found.
By saving the maximum cash ISA allowance each year, the account would now be worth £38,328, however if that money had been placed into an offset mortgage account instead, the savings would now total £31,200, however the outstanding mortgage would have been reduced by £10,434. This creates a total saving of £41,634 and accounts for the £3,306 increased performance.
It is the fact that mortgages mostly have higher interest charges than savers receive from the cash ISAs that accounts for the performance differences. Overpaying a mortgage is always a good idea.
Richard Tolchard, senior mortgage product manager at first direct, commented: “For people without a mortgage or possibly nearing the end of their mortgage, cash ISAs are often the most efficient way to save cash. However for savers who hold a mortgage, this analysis show that cash savings work harder offsetting against a mortgage than they do within a tax efficient ISA.”