Trustnet asks experts where any excess cash is best placed.<\/p>\n
Deciding where to prioritise savings is one of the most important but difficult ongoing decisions people will make in their lifetime.<\/p>\n
As we age, our money is pulled in many different directions and there are lots of different options for where to put any extra cash.<\/p>\n
Three of the most common are ISA accounts, a pension or to overpay a mortgage.<\/p>\n
Following chancellor Rachel Reeves\u2019 latest Budget, there are more questions than ever over which is best. Cash ISA allowances have been slashed and national insurance (NI) is going to be applied to salary sacrifice pension contributions. Meanwhile, interest rates remain elevated, with inflation running hotter than the Bank of England\u2019s target.<\/p>\n
With this in mind, Trustnet asked experts for the benefits of overpaying a mortgage, placing money in an ISA or adding to a pension and asked which should be the priority for most people.<\/p>\n
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Overpaying a mortgage \u2013 the psychological benefits<\/p>\n
Typically, the advice for most people is to overpay on a mortgage when interest rates are high, while if locked into a lower rate, this is a less of a priority.<\/p>\n
Anna Murdock, head of wealth planning at JM Finn, said: \u201cIf the mortgage was taken out and fixed when interest rates were a lot lower than they are now, it may well still be benefiting from a low interest rate and repayment may not make best sense.\u00a0<\/p>\n
\u201cHowever, as the fixed period expires, it could well become more attractive to consider repayment if the new rate will significantly increase, but bearing in mind that is not usually easy to readily access this capital again if required (unless using some sort of offset mortgage).\u201d<\/p>\n
However, the non-financial reason to prioritise this is the peace of mind it brings people. Trott said financial decisions \u201caren\u2019t purely mathematical, they\u2019re emotional too\u201d.<\/p>\n
\u201cMany people prioritise what makes them feel secure, even if it isn\u2019t objectively the most efficient choice,\u201d she said.<\/p>\n
\u201cFor example, I wanted to pay down my mortgage early because I watched my parents lose their home when I was young. It wasn\u2019t the most financially optimised route, but it was the right decision for my peace of mind. Now that my mortgage is gone, I can re-evaluate and shift my priorities \u2013 and that\u2019s something everyone should do regularly.\u201d<\/p>\n
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Pensions \u2013 long-term savings with additional benefits for top-rate taxpayers<\/p>\n