When savings rates are so low, remember the flipside

The average rate on a no notice savings account is currently a pitiful 0.74% which is almost three per cent less than the average just two years ago. But on the flipside, mortgage rates are also riding low -in 2008 the average tracker rate was 6.28%, now, it is 3.61%. Here, George Ladds, head of investment and pension research at Fair Investment Company urges savers and borrowers to work the rates in their favour.

"The base rate has been 0.5% now for 18 months in a row, and with rates so low many families have found their mortgage payments falling, but have maybe done little to capitalise on that fact.

"If, like millions of homeowners, the low base rate has adversely affected your savings but positively affected your mortgage, you should make sure you are taking advantage. When you are paying more on your debts that you are earning on your savings, the most sensible thing to do is to pay off more debt.

"For example, take a 25 year £100,000 mortgage. Two years ago, the average tracker rate was 6.28%, which means repayments were £662 a month. Now, the average tracker is 3.61%, which is a repayment of £507 on the same loan.

"If you chose to overpay the mortgage by the difference between the 2008 payment and today's (£155 a month), you would shave more than eight years off the term and save more than £18,000, but your monthly outgoings would stay the same.

"For many who have seen their budget squeezed, the extra cash is needed simply to make ends meet, but if you can afford to pay extra off your mortgage, not only will you be saving in the long run, but if interest rates go up and your mortgage payments increase again, you can stop the overpayments so the increase doesn't impact on your budget.

"If you have a large sum in savings that is earning very little, you could also consider paying off the entire mortgage early or at least a sizeable portion of it. Or, to minimise the impact of an increase in interest rates, another option is to move your savings from poorly performing interest accounts into an offset mortgage account."