Sunday 25 January 2009

Saving Money


Normally I avoid too much personal finance on the blog. However, having been recognised by The Times as one of the top Personal Finance blogs, I guess I had better do something.

Then as it happens I see this in the Sunday Papers. HSBC writing to people to say overpay your mortgage as your rate drops and save yourself a fortune in the long-term.

Is this a good idea?

On the plus side, saving rates are low so that is wasted, also who wants over £50,000 in a bank account anymore?
Secondly, if you have not lost your job then by keeping mortgage payments the same as before you won't have really altered your monthly budget.
Thirdly, investing in wold markets is a good way to lose your money as the moment as I am proving strongly in the early weeks of this year.

On the other hand there are some rather large elephants lurking int he corner. Firstly, HSBC needs to improve its capital ratios, pulling in more money is clearly in its best interests- hence the advice.

Perhaps even bigger though is that all the money thrown into the system is going to cause some big inflation in years to come. The price of Gold spiked to all time highs in pounds last week. If there is inflation to come then the last thing you want to do is pay debt, as that will inflate away quite quickly (could be painful if interest rates shoot up though...).

On balance I would not take HSBC's advice myself. Much better for me to pay off overdrafts, personal loans and credit cards if you have money available rather than a stable long-term mortgage.

What would you do?

14 comments:

Nick Drew said...

OK, CU I will tell you what I did - get a 'linked' mortgage

(so that what would be interest payments on the savings in the 'linked' account, offset the interest payments on the mortgage (the capital payments on which remain the same), with the added benefit that there is no tax on the interest thus netted-off)

seems to me this logic meets one of your criteria: the mortgage debt is still there to be eroded, should inflation strike (huh!). And overall flexibility is good, too - I can pull the savings at any time if I've a better use for 'em.

But I have to admit I'm putting them on the line as regards whatever credit risk is involved with my bank - and I've lost count of what the govt is doing in that regard (blustering mostly, I think)

just my approach: maybe wouldn't suit all

a_concerned_individual said...

You can guarantee that if the banks are suggesting you do something it will be in their interests not yours. The financial services industry has a history of fleecing its customers yet still they (we) come back for more!

Anonymous said...

We've got a flexible mortgage so that if you pay some off and later regret it, you can borrow it back again. It's been very convenient for us.

Steven_L said...

The Times hack seems to think Bill Quango is a real MP. Where do they get these people from?

On the subject of personal finance, I've been eyeing up a few bonds like you suggest CU.

The market seems to be pricing in a sizeable risk Boots will go under before May is out!

Z A Chaudhry said...

That's quite an informative article. However, i've heard that the UK will likely be experiencing deflation in 2009 and once that happens the borrowers will obviously be worse off.

I'm also wondering about something else. Since most people agree that, considering the situation of banks lately and the economic crisis, it's best to save in the form of gold or silver, shouldn't assets such as property be a good form of saving? By paying off your mortgage now when it's cheaper nominally and in real terms, you would end up with an asset which is quite safe, useful, and most likely to appreciate in the coming times.

lilith said...

Fame, Boys!

Richard Elliot said...

Deserved recognition!!

I'm broadly with CU. Most investments seem to be pretty volatile / risky at the moment. Or at least I'm not doing very well!

Pay off more expensive debts first and then hit the mortgage.

CityUnslicker said...

dearime - you always have the sanest answer along with Drew.

SL - Corporate bonds are, um, strangely priced are they not?

Zain - This is HSBC's argument. but will deflation last long in the face of the huge monetary stimulus?

Bill Quango MP said...

I didn't change the repayments last year from when the new direct debit came in at around 7.5%.
So I overpaid a little, but it hasn't dented the capital enough to make me feel any better.
Doing it again this year, but at a lower 3.5%.

Simon Fawthrop said...

I took this line since taking my first mortgage in 1977. I paid off my outstanding mortgage in 2001, haing moved and remortgaged twice.

There is no feeling better than knowing that no matter what happens (within reason) nobody can take your house away.

JPT said...

I wouldn't take the banks advice on anything nowadays I'm araid.

Lola said...

This is financial advice from a bank? A bank for chrissake! They can't run their own bloody investments and debts so how the hell are they equipped to advise you on yours?

Anyway, advisers advice is mostly coloured by their own life experiences. The current life experience of all banks is that they've made giant personal financial cock ups leaving them with too much debt, which they now need to pay off.

Nevertheless, to be serious, debt is Not A Good Thing for most ordinary folk. So pay off the most expensive first working down to your mortgage. Overpay by all means if it within your budget to do so.

Remember, life works like this...

Get born. Grow up. Get a job. Start paying PAYE (The taxmans got you). Get a wife. Get a house aka get a mortgage (The bank and the employer have got you). Now you have to go on going to work at the employer you may hate who pays you just enouigh so you don't leave, to pay the mortgage and the taxman. Moral? Steer clear of women, well marriage or long term commitments really.

The three wierd sisters - HMRC, Banks, Employers.

Confession. That's me screwed. I have wife plus four littl'ns. Sigh.

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