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Currently no easy access savings accounts and only a handful of bonds pay enough interest to offset the effects of inflation and taxation – in these saver-unfriendly times people need to use more offset mortgages.
According to Moneysupermarket.com, basic rate tax payers will now need an account paying at least 4.26% to gain benefit in real terms from their savings, increasing to 5.67% for higher rate tax payers and 6.81% for 50% taxpayers.
That’s just not going to happen right now using a regular bank or building society savings product. To get those sort of returns you need something that works in low rate and high rate environments. By choosing to offset a savings amount of £30,000 alongside an offset mortgage, Moneysupermarket says borrowers could reduce the term of their mortgage by 4 years and 7 months and save £8,595.27 in mortgage interest.
That’s a huge saving that no one would turn their nose up at. And because the saving comes from a reduced mortgage rate, not interest, there is no tax to pay – with offset, the savings are huge and the taxes are zero.
Kevin Mountford, head of banking at moneysupermarket.com, said: “Over the last few months we have seen inflation rise and fall and it is becoming increasingly difficult for savers to keep an eye on the best way to offset the effects of inflation on savings.
“Now may be the time for consumers to look at alternative ways to make the most of their savings pot. One option of overpaying expensive debts by just a little each month can soon make a big difference to overall sums and now is the time to do it.”
SOURCE: Moneysupermarket.com, 20/04/10
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