Compare overpaying vs a savings account post-tax. Factors in the Personal Savings Allowance and your tax band so you see the real picture, not the headline rate.
Compare overpaying your mortgage to saving the same money.
We automatically apply your PSA: £1,000 tax-free for basic-rate, £500 for higher-rate, £0 for additional-rate.
If your mortgage rate is higher than your post-tax savings rate, overpaying wins. Right now most UK mortgage rates sit above most savings rates post-tax, but not always.
Most people hear "overpay your mortgage" or "stick it in a savings account" and pick whichever has the higher headline percentage. That's the wrong way to decide.
Overpaying saves you guaranteed, tax-free interest at your mortgage rate. Putting money into savings earns you interest at the savings rate, but HMRC wants a slice of it. So the correct comparison is your mortgage rate versus your post-tax savings rate.
Every basic-rate taxpayer in the UK can earn £1,000 of savings interest each tax year without paying tax on it. Higher-rate taxpayers get £500. Additional-rate taxpayers get nothing. Anything above that is taxed at your marginal rate, effectively detailed on GOV.UK.
So if you're a higher-rate taxpayer earning 4.5% on savings, once you blow through your £500 PSA you're really earning 2.7% on the rest. If your mortgage rate is 4.5%, overpaying is the obvious winner, and the gap gets bigger the more you save.
£200 a month, 25-year £200k mortgage at 4.5%, saving vs overpaying at a 4.3% savings account as a higher-rate taxpayer. The calculator above shows overpaying saves about £7,000 more over the term than saving, even though the headline rates are only 0.2% apart.
Saving beats overpaying when:
Overpaying beats saving when:
A cash ISA or stocks & shares ISA sidesteps the PSA question because the interest is tax-free. And a pension contribution gets tax relief on the way in, which is hard to beat. We've built separate calculators for each of those comparisons because the maths genuinely differs.
We don't list specific products here because rates change weekly. For independent, regularly-updated tables of UK savings rates and ISAs, MoneyHelper (the government-backed service) and Which? are good neutral starting points.
Before overpaying anything or chasing savings rates, keep 3–6 months of essential expenses in an easy-access account. Overpayments are almost impossible to reverse in an emergency.