Rising inflation coupled with a historically low base rate of 0.5 per cent has left consumers with very few opportunities to gain any real return on their savings – but for those savers who also have a mortgage, now could prove the perfect time to consider switching to an offset mortgage deal as a way of providing an alternative to poor paying savings accounts.

According to Moneysupermarket.com, customers taking out a £100,000 offset loan at 3.49% and holding £30,000 in a linked savings account would only pay interest on the remaining £70,000, saving £11,648.51 over the lifespan of the mortgage, and would knock five years off the payment term also.

It says to be able to match this deal, savers would need to find a savings rate of at least 4.5% for basic rate taxpayers, rising to 6% for higher rates taxpayers. None of the 264 UK easy access savings accounts currently pays a high enough rate.

Hannah Mercedes-Skenfield, mortgage channel manager at moneysupermarket.com, says: “It is becoming almost impossible to find an account which offers a real return on your savings. As a result, the advantages of an offset mortgage are becoming more attractive to borrowers who also have a decent savings pot.

“At times like these, when interest earned on savings after tax is potentially lower than the interest consumers pay on their debt, offsetting can be a great option. There is an additional benefit for taxpayers, as you don’t earn interest on the savings, you won’t be taxed on them either. This is even more of a benefit to higher rate taxpayers.”

SOURCE: Moneysupermarket.com, 15/03/10

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