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Top Rate Tax Payers Get Over 3 Times More From Their Savings With An Offset Mortgage

LONDON, March 26, 2013 /PRNewswire/ --

For savings balances of £50,000:

  • 45 % tax payers could be £ 996 better off in just one year with an offset versus an instant access savings account*
  • 40% tax payers could be £ 969 better off in just one year with an offset versus an instant access savings account*
  • 20% tax payers could be £ 860 better off in just one year with an offset versus an instant access savings account*

In the current environment of low interest rates everyone is hunting for the best home for their hard earned savings, especially high rate tax payers. 

For those wanting easy access to their savings an instant access account is a must, but with the Bank of England Base Rate likely to remain low for the foreseeable future, first direct argues that savers, especially high rate tax payers, with a large savings balance can get more benefit from offsetting their savings against their mortgage instead. 

first  direct, which supplied nearly two fifths of all new offset mortgages in 2012, has compiled a table based on £50,000 in savings.  The table approximately illustrates the benefit in just one year of offsetting savings versus depositing them in an instant access savings account*. 

                           Average Instant
                           Instant Access
                           Access  Saver -
                           Savings interest              Saving by
                           rate    on                    offsetting Benefit of
                           after   GBP50,000             GBP50,000  offsetting
                           tax**   in one                for one    savings
    Income Tax Bracket     (AER)   year (a)  Offset rate year (b)   (b-a)
    45% (GBP151,000+ from
    6/04/13)               0.60%   GBP299.75 2.59%       GBP1,296   GBP996.25
    40% (GBP34,371 -
    GBP150,000)            0.65%   GBP327.00 2.59%       GBP1,296   GBP969.00
    20% (up to GBP34,370)  0.87%   GBP436.00 2.59%       GBP1,296   GBP860.00

Andy Forbes, Head of Retail Products at first  direct commented: 

"For those people who have a mortgage and savings, offsetting is a fantastic option.  They can benefit from a higher equivalent rate of interest on their savings, pay less interest on their mortgage as well as the added benefit of having access to their savings at any time."

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