Martin Lewis issues urgent warning to UK savers which could see ‘gains worth £10,000’
- The financial guru has urged people to opt for overpaying debts over saving up
- He claimed the rule applies for mortgages and could offer you £10,000 extra
Martin Lewis has issued an urgent warning, telling anyone with a savings account to start overpaying their debts.
The Money Saving pro shared tips which could help you choose the right savings account, all while saving you hundreds of pounds.
Mr Lewis pointed out that there are many different types of savings accounts out there and choosing the right one is vital.
Focusing on the ‘standard’ savings accounts, he advised: ‘If you’ve got debts or a mortgage, overpaying often beats saving.’
The Money Saving Expert said savers should start overpaying their debts as it could leave them financially better off
So, if in the position to, savvy savers should try to clear off any expensive debt before they begin saving.
Explaining his reasoning, the Money Saving Expert said: ‘£1,000 debt on a credit card costs £220 in interest over a year.’
Meanwhile, he claimed: ‘£1,000 saved in a savings account at 3% earns £30 in interest over a year.’
So, he said: ‘Pay off the debt with the savings and you’re £190 a year better off.’
He added that debts usually cost more than savings earn so if you cancel them out, you’ll be ‘better off’.
Mr Lewis explained that a similar rule applies for mortgages, he claimed that mortgage overpayments are at a 20-year high due to interest rate hikes.
He added: ‘Overpaying your mortgage should be a serious consideration if you have the cash,’ and could leave many homeowners with gains worth ‘£10,000s’.
Mr Lewis explained that overpaying your mortgage can be a huge cash boost as you’ll be ‘eating into’ the debt you’ve built up from buying a home, meaning you can be mortgage free sooner.
He added that you don’t pay interest on the amount you overpay and the money you’d save on interest may beat the returns from putting it into savings.
He said: ‘The gains can be worth £10,000s.’
He said homeowners should also consider overpaying as it could offer gains of £10,000s, but make sure you have payed of other debts first
Offering a ‘key rule’ to homeowners, he said: ‘If your mortgage rate is around the same, or higher than your savings rate then it makes sense to overpay.’
‘You can save such large sums of interest by overpaying because it doesn’t just get rid of the debt – it gets rid of the interest you would have paid on that bit of borrowing in the future too.’
Hopeful money savers can check the Mortgage Overpayment Calculator, to see which option is best for them.
Before opting for overpaying, the expert first advised following three crucial steps.
Firstly, he told those with other expensive debts, such as credit card debts or student loans, to prioritize clearing those off first.
READ MORE: Martin Lewis urges those with at least £8,000 in savings to check their bank accounts NOW
He said: ‘Clear high-interest credit cards and loans before overpaying your mortgage, as they’re usually more expensive.’
Additionally, he advised payers to make sure you can overpay without a penalty and to check how much you can pay at a time.
‘If your lender does allow overpayments, but you overpay more than it allows, you’ll usually be charged a fee, typically between 1% and 5% of the amount overpaid,’ he warned.
Finally, he told everyone to make sure they have a ‘sufficient emergency fund’ in a ‘top savings account’.
Those who are debt-free aside from their mortgage should have an emergency fund in case of emergencies.
He said: ‘Three to six month’s worth of cash is a good guide, enough to live on if you lost your job for example.’
Mr Lewis also advised people to check their current savings account to see what the rates are, and if they are settling for a lower amount than those currently available
Source: Read Full Article