Advice needed on investing vs savings / mortgage

BBassic · Mar 16, 2017

I'm currently saving a decent sum of money a month, putting it into a basic cash ISA with a horribly low AER. Recently I've been thinking about splitting it out and putting half away into some sort of investment fund and keeping the other half going into the ISA.

Trouble is I've never done this before and the information on the internet I've found, even the 'How to get into investing' idiots guides are a bit overwhelming. All I do know from my research is that I'm happy for the money to sit in whatever I decide to put it into and that I'm ok with a medium level of risk. I understand that it isn't worth investing at all if A) you're a bit impatient or B) you're unhappy with the risk of losing more than you've put in.

One alternative I thought of as well was not investing at all and instead putting one half into a separate account and at the end of the year using that to pay off a bit more of the mortgage; doing that on top of the monthly payments would knock about ten years off it.

And then the final option is to just keep going as I have been but that seems a bit of a waste when there's other options available.

Anybody have any advice / suggestions? Cheers :thumbsup:

Dick Swiveller · Mar 16, 2017

BBassic said:
I'm currently saving a decent sum of money a month, putting it into a basic cash ISA with a horribly low AER. Recently I've been thinking about splitting it out and putting half away into some sort of investment fund and keeping the other half going into the ISA.

Trouble is I've never done this before and the information on the internet I've found, even the 'How to get into investing' idiots guides are a bit overwhelming. All I do know from my research is that I'm happy for the money to sit in whatever I decide to put it into and that I'm ok with a medium level of risk. I understand that it isn't worth investing at all if A) you're a bit impatient or B) you're unhappy with the risk of losing more than you've put in.

One alternative I thought of as well was not investing at all and instead putting one half into a separate account and at the end of the year using that to pay off a bit more of the mortgage; doing that on top of the monthly payments would knock about ten years off it.

And then the final option is to just keep going as I have been but that seems a bit of a waste when there's other options available.

Anybody have any advice / suggestions? Cheers

I'm not expert but always I pay a bit off the mortgage if I have a bit spare. Obviously depends if you have a standard mortgage that lets you over pay but the earlier in your mortgage you are, the more compound interest you will save by overpaying.

BBassic · Mar 16, 2017

Dick Swiveller said:
I'm not expert but always I pay a bit off the mortgage if I have a bit spare. Obviously depends if you have a standard mortgage that lets you over pay but the earlier in your mortgage you are, the more compound interest you will save by overpaying.

Yeah we're not even a year into it yet but we can overpay. It's something like X% of the total amount remaining per year.

Springal · Mar 16, 2017

For the investing side, Stocks/Shares ISA. A number of websites will offer ready made packages with different risk levels depending on your aim. As these are within an ISA wrapper they are tax-free.

I used The Share Centre who have a great website, easy to use and a Cautious / Positive / Adventurous risk ready made ISA packages. I went Adventurous for 16/17 which has grown 18% since I opened it last April. My Positive one from 15/16 has performance at about 15% growth since opened.

Not sure exactly how these benchmark against others as there are a lot of platforms out there but I have been happy with the return and the way it is managed. No management fees or charges either which is a bonus.

Dick Swiveller · Mar 16, 2017

BBassic said:
Yeah we're not even a year into it yet but we can overpay. It's something like X% of the total amount remaining per year.

We've always been on Nationwide's standard base rate one which means we can overpay as much as we want. I'm sure not fixing will make Uncle Spielberg cry but it works for me. Think we have overpaid by around £4500 over the years which can either reduce the term or your monthly payments. Not massive but every little helps. My simple maths suggests that saving compound interest on 100 is better than earning interest on £100 - especially if the mortgage rate is higher than then savings rate. Be interesting to see what other people do.

BBassic · Mar 16, 2017

Thanks [MENTION=3462]Springal[/MENTION], will check out The Share Centre.

dazzer6666 · Mar 16, 2017

Sure the interest rate on your mortgage will be way more than you'll earn on any cash savings. Overpaying also has a significant impact on shortening the term (there are several online calculators you can use to illustrate this - it is quite startling). We overpaid for several years with all this in mind, very happy that we did but depends on level of risk you want to take with any savings. Pretty much anything in the stock market has flown for the last couple of years but no guarantee of this continuing and of course values may plummet meaning you lose money.

If you're conservative then overpaying the mortgage is probably going to be a better option.

warmleyseagull · Mar 16, 2017

Until recently it was always better to pay off mortgage as interest rate on mortgages were invariably higher than you could get by investing elsewhere with a reasonable security.

In the times of ultra low interest rates, that has been turned on its head; I have avoided paying off my BTL mortgage at 1.99% in favour of dividend returns at about 4%.

You really have to balance these two things: if you pay off mortgage, the cash is effectively 'gone'; you can't use it for an emergency or luxury spend (OK you can increase mortgage down the line but it costs, far better not to do so in first place); against that, you have to take some risk if you are to beat mortgage interest, by using investment funds, shares etc as you realise. You cant really lose more than you put in except for very exotic geared investments for the uber rich - nothing else goes down more than 100% - but you can obviously lose some of your money.

I would do some resetting in your position: keep some rainy day money but perhaps less than what you have earning diddly squat, pay a bit off the mortgage, and have a bit of fun with the bit that you feel you could see diminish at worst. If you dont know what you are doing, search low risk investment funds. I wont give names else might lead me into trouble but multi asset funds are not a bad bet.

BlockDpete · Mar 16, 2017

I'm overpaying my mortgage at the moment, mainly to get me more financially secure.

I do have some share, and cash deposits, but wouldn't mind getting these to work a bit harder.

happypig · Mar 16, 2017

Consider AVC (additional voluntary contributions) into your pension. The upside is that they come from pre-tax earning so if you put in £100 a month you will only be £75 light (or £60 if higher rate taxpayer). Downside is that the money is locked in until you retire (but it might enable you to retire earlier).
There are limits on how much so an IFA is really needed before you go down that route.

BBassic · Mar 16, 2017

warmleyseagull said:
Until recently it was always better to pay off mortgage as interest rate on mortgages were invariably higher than you could get by investing elsewhere with a reasonable security.

In the times of ultra low interest rates, that has been turned on its head; I have avoided paying off my BTL mortgage at 1.99% in favour of dividend returns at about 4%.

You really have to balance these two things: if you pay off mortgage, the cash is effectively 'gone'; you can't use it for an emergency or luxury spend (OK you can increase mortgage down the line but it costs, far better not to do so in first place); against that, you have to take some risk if you are to beat mortgage interest, by using investment funds, shares etc as you realise. You cant really lose more than you put in except for very exotic geared investments for the uber rich - nothing else goes down more than 100% - but you can obviously lose some of your money.

I would do some resetting in your position: keep some rainy day money but perhaps less than what you have earning diddly squat, pay a bit off the mortgage, and have a bit of fun with the bit that you feel you could see diminish at worst. If you dont know what you are doing, search low risk investment funds. I wont give names else might lead me into trouble but multi asset funds are not a bad bet.

Cheers, I think this is what I'm leaning towards. Instead of splitting it in half, splinter it into smaller groups and then save, invest and bring the mortgage down.

LamieRobertson · Mar 16, 2017

Overpay your mortgage....ISA's are only the envelopes..it's what's in them that counts and if you don't know much about investing that's another reason to go the mortgage route and as another poster had said put some aside for things unforeseen

It should be noted that even cash ISA's aren't as valuable now....with rates so low and the ability to earn £1000 in interest tax free per tax year

Audax · Mar 16, 2017

Unless you're earning huge amounts of interest in a year, ISA's aren't necessarily the way forward anymore. Their advantages have been steadily eroded over the last few years, by giving similar (though restricted) advantages to standard savings accounts (one of the few things I'm glad the Tories have done).

I'm in a similar position: well endowed ISA account, mortgage that's still in its early years, and bringing in more than we spend each month. We've got a young kid now, so for us we're staying away from risky investments for now.

What we've been doing is keeping our eyes open for the best high interest accounts each year. The ISA routinely gets transferred each year to make sure it's on the best rate we can get it on - the key with this account is that it's actually our emergency fund, in case of something nasty like redundancy. We still like to get a good rate on it, but not necessarily after the best rate around. And then we have (for me and my wife) high interest savings accounts that we shovel as much as we can into. And we also make sure we overpay the mortgage by as much as we're allowed to each year, as early in the year as we possibly can.

Simple fact is, right now for most people who have a mortgage the best "return on investment" you can make is putting the money into the mortgage. For us, when we overpay by at least £500 in any given month the bank reduces our monthly payment (so that the term remains the same). That means more 'usable' money coming in that we can then save (or use for further overpayments). Also, for our mortgage, should we need to use it the overpayment actually allows us to tell the bank to stop taking payments for a period of, say, 6 months. Instead, each month they reduce the amount that's gone into our overpayment reserve by the amount of the normal monthly repayment. So if - heaven forbid - we were to get into dire straights for some reason, we've got both the ISA and the overpayment reserve to fall back on while we get sorted.

So I guess long story short is: depending on your personal circumstances, overpaying the mortgage is probably the way to go.

Fungus · Mar 16, 2017

From the point of view of a 59-year-old, I have to say that paying off the mortgage early is hugely liberating.

I did also put extra money into my pension, which allowed me to retire early, but that's long term, and possibly risky if they move the goalposts.

beorhthelm · Mar 16, 2017

Dick Swiveller said:
...My simple maths suggests that saving compound interest on 100 is better than earning interest on £100 - especially if the mortgage rate is higher than then savings rate.

absolutely right. the advantage of keeping savings is access to the cash if needed. however, with inflation creeping up and interest rate static, keeping cash is gradual erosion of cash. shopping for a cash ISA seems the obvious compromise, with some in a FTSE track for a bit of risk/reward over medium long to long term. do all three (mortage over payments, cash isa, tracker) is the best off all if the surplus makes it seem worthwhile.

Tricky Dicky · Mar 16, 2017

Paying lumps off m y mortgage every month was probably the best thing I ever did financially. Didn't make much difference at first, but the more you pay off, the greater sum you can afford to pay off each month. I completely paid off my mortgage in a few years.

ditchy · Mar 16, 2017

One alternative I thought of as well was not investing at all and instead putting one half into a separate account and at the end of the year using that to pay off a bit more of the mortgage; doing that on top of the monthly payments would knock about ten years off it.

If you put that money into premium bonds . earn no interest but you will win and always chance you may win without losing your capital !

mejonaNO12 aka riskit · Mar 16, 2017

Tricky Dicky said:
Paying lumps off m y mortgage every month was probably the best thing I ever did financially. Didn't make much difference at first, but the more you pay off, the greater sum you can afford to pay off each month. I completely paid off my mortgage in a few years.

I'm a bit of a THICKO so apologies if my question is a stupid one but can you explain that to me? my rate is fixed for 10 years. No matter how much I overpay now, I won't see a monthly benefit unless I remortgage?

mejonaNO12 aka riskit · Mar 16, 2017

Secondly I saw the Share Centre mentioned.

If I'm happy to go for "higher risk" but have literally no knowledge of the markets/investments, is there the option to send a monthly payment into an account which is automatically invested on my behalf?

I'm really coming across as a DULLARD here.

mikeyjh · Mar 16, 2017

mejonaNO12 aka riskit said:
I'm a bit of a THICKO so apologies if my question is a stupid one but can you explain that to me? my rate is fixed for 10 years. No matter how much I overpay now, I won't see a monthly benefit unless I remortgage?

The rate is fixed on the capital that is reducing every time you make an overpayment, therefore your monthly payments will reduce, and they reduce quickly. As Oxy mentioned, paying off your mortgage is hugely liberating. We paid off our £250k mortgage a few years back after 8 years, that's 17 years of interest avoided, if I recall correctly that saved us 100k plus.

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