Could someone please explain to me in simple terms hows the One Account actually works and what the pro's and con's of this type of account are?
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1SGUser postedThe One Account is effectively a current account with a very large overdraft facility, secured against your home. I am assuming your mortgage is more than your savings...
The main advantage: as you only pay interest on your net balance, you are effectively getting savings interest paid tax free.
The main disadvantage: your mortgage rate may be higher than you could get elsewhere, so you only gain if your savings are 'significant' compared with your mortgage. What counts as significant depends on what rates you get elsewhere.
Other points:
- having just one account should make life alot simpler, and you shouldn't have to worry about the FSCS limit until your savings exceed your mortgage
- when you check your balance, this will be a large negative number. You need to be able to handle this psychologically .
- An alternative would be an 'offset' scheme (eg Intelligent Finance, amongst others). Here you have separate pots for savings, current and mortgage accounts, but the interest is calculated on the total (negative) balance. For tax purposes these are usually equivalent, except that you may be able to build up tax-sheltered funds in cash ISAs whilst still using them to offset.
Posted on 29 October 2008 |
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1GrahamMiller0 posted
SGUser has covered it quite well.
One small detail missed is that your interest is charged daily (or it was last time I looked at it). This means that every time your salary hits the account, you (for a short time) owe less. Therefore you pay less in interest. The difference may be peanuts per month, but over 25 years it can add up to quite a saving.
I like the concept. Of course, like everyone else, they expect to make a profit from you. However, in theory, it is a very efficient way of managing your money.
Posted on 29 October 2008 | Love 0 loves
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0followdeyes posted
These accounts can offer an advantage if you have sporadic large balance in your account. For example you may get paid a large wage but by the end of the month this is all gone. In a regular current account you would be receiving next to nothing in interest but with a offset account like this you are, in effect, gaining a tax free level of interest on your current account equal to the level of interest you pay on the mortgage.
however, a few years ago I had an Intelligent Finance product, it sounded great at the time but as I generally lived in my overdraft I would have been better with a mortgage with a lower interest rate
Posted on 29 October 2008 | Love 0 loves
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0claretandblue08 posted
There are or were 2 types of one account products. One that had a bank account attached to it and one that was just like a normal mortgage.
The bank account one comes with a credit card (or did last time I dealt with them) and you are supposed to arrange all your direct debits to come out the day before you get paid and pay for your living on the credit card as much as possible.
The theory is that your wage hits your account and your full wage reduces your mortgage balance for a whole month (minus 1 day) and then all your direct debits come out and your mortgage increases back up for that day. Your wage then goes in again and the process repeats.
The credit card should be cleared each month to stop interest accruing on that and if you can spend less than you receive, your mortgage should shrink each month.
Now, in theory this works. In practice it can work BUT you need to be very very strict and use your own credit card if you do as theirs used to be that you had to clear the balance every 14 days to keep it interest free - where as most normal credit cards are 59 days.
If you like the idea of reducing your mortgage then a normal mortgage with overpayment facilities can be good. Although few will let you draw it back again once overpaid without further underwriting, where as the one account you can just use all your agreed credit limit and wipe out all the good work on a whim.
Posted on 29 October 2008 | Love 0 loves
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0Guynextdoortype posted
Personally I have had two (at different periods) and I really liked them alot. It made it crystal clear that I what interest on the mortgage I was not paying by having my savings set against the mortgage. One advantage not usually discussed but from conversations with others who use an offset mortgage, is that seeing the savings on a monthly basis it really motivating, and I was inspired to find extra money to offset against it, and consequently, paid off my m ortgage many years sooner than I would have ordinarily (and thus saved a huge amount of interest). I'm a big fan of them now, but they only work well if you have some savings, and pay your salary into the account. That alone can save around two years off the term.
Posted on 31 October 2008 | Love 0 loves
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