Cash ISA interest is completely tax-free, which changes the maths. This calculator compares overpaying to a fully-utilised ISA, ignoring your tax band entirely.
Cash ISA interest doesn't count toward your PSA.
You can put up to £20,000 per tax year into ISAs. £200/month is well within that limit.
Outside an ISA, savings interest above your Personal Savings Allowance is taxed. Inside a cash ISA, every penny of interest is tax-free forever, regardless of how much you've saved or what tax band you're in.
That matters more than people realise. If you're a higher-rate taxpayer earning 4.5% on £50,000 of savings, you're already deep into tax territory. Move that money into a cash ISA at the same rate and you pocket the full 4.5%. The ISA sometimes beats overpaying even when the headline rates are identical.
Most people don't need to pick one or the other. A sensible pattern is: build an emergency fund in an easy-access cash ISA first, then split future monthly savings between ISA contributions and overpayments, adjusting the split based on whichever is currently more attractive. Our overpayment strategies guide explains six practical approaches.
If you decide to overpay, remember most UK mortgages cap penalty-free overpayments at 10% of your outstanding balance per year. Exceed it and you'll pay an Early Repayment Charge, which is usually 1–5% of the excess. Our plain-English guide to the 10% rule covers the details.