Martin Lewis gives 'simple rule' telling anyone with savings where to put them

Martin Lewis gives 'simple rule' telling anyone with savings where to put them Personal finance expert told ITV This Morning viewers the answer to the 'most-asked' question currently Martin Lewis has answered the question he gets asked most frequently currently - and it’s all about savings. Appearing on ITV’s This Morning the personal finance expert said people are currently worried about their mortgages - but aren’t sure if it’s best to pay it off - or put the money into savings. The issue is interest rates - which are sending mortgages soaring, but are also offering a better return on savings. TV show host Ben Shephard said: “So that question that you get asked more often than anything. Should I overpay? If someone is lucky enough to have some savings and the opportunity to do something like that, should they overpay?” Martin explained that times are tough and many people are trying to make their money go further: “Whenever I talk about savings, people go, who’s got savings? I mean, just report from Bank of England today, an extra £4.7 billion has just been put into savings. “In the pandemic alone, £150 billion. We have over a trillion quid worth of savings in this country. This is not a small issue and it’s why we get more questions about savings and debt when we do the open phone it. So that’s why I wanted to cover the subject.” Mr Lewis said before doing anything, people need to decide what the biggest priorities are in their finances - and where they could save money. He explained: “First thing you do if you’ve got other expensive debt, you know, credit card debt, a loan that’s expensive that you are allowed to overpay without penalties. “You want to clear those before you’re clearing your mortgage because their interest rate is high. So, we’ll start with that.” So, beyond expensive debt, he said that people then need to do a calculation based on savings vs mortgages. He said: “The next question is - if your mortgage rate is higher than the after tax rate you can earn in savings, you would in principle want to overpay your mortgage rather than save. “If you can earn more in savings than your mortgage rate is costing, then in principle you would probably want prefer to save than overpay your mortgage. Because overpaying your mortgage is effectively like saving at the mortgage rate. “Let’s do it really simply. You’ve got £1,000 in the savings account at 4%. You’re going to earn £400 a year, although it may be taxed. You’ve got £10,000 of debt on your mortgage at 6%. It’s going to cost you £600 a year. Overpaying the mortgage has the effect of saving at the mortgage rate. That’s why the easy comparison. Although I would go on to a mortgage overpayment calculator to check. Um, and just to to put this into context, if you were to overpay £200 a month on your mortgage on a 5% mortgage with a 20-year term, you would clear it four years early and save £30,000 in interest.” Inflation is widely predicted to keep rising over the coming months as higher energy costs continue to filter through, with households set to witness a roughly 4% rise in the energy price cap from next week. The Bank has predicted that inflation will increase to around 3.7% in the fourth quarter of this year and 4.2% in the first quarter of 2027. He explained he has a simple ‘rule’ to decide what to do: “There’s a simple rule of thumb here. If your mortgage rate is higher than the after-tax rate you can earn on savings, you’re generally better off overpaying the mortgage. If your savings rate is higher than you’re paying on your mortgage, you’re generally better to save.”