What to do with your work-from-home savings
If you’ve saved more than usual this year, where should the money go? On paying off your debts, says Ruth Jackson Kirby.

When you’re stuck at home all the time the opportunities to spend money are vastly reduced. As a result, many of us have been saving more this year. Prior to lockdown the average household saved just under 10% of their income, but this rocketed to 29.1% in the first lockdown, according to the Office for National Statistics.
While many of us have more money in our savings accounts, the banks are not rewarding us. The record-low Bank of England base rate means that the average easy-access savings account pays just 0.23%, according to Moneyfacts. The best possible rate is a paltry 1.65% from AgriBank and you’d have to lock your money up for five years. So, what else could you do with your money?
One idea could be to reduce your debts. In all probability the interest you are paying on your debt is higher than the interest you are earning on your savings. In which case, it may make sense to use your savings to reduce your debt. One key example of this is your mortgage.
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When you overpay your mortgage, you reduce the amount you owe to the bank. You are therefore no longer paying interest on that chunk of debt. “Overpaying means you make the same gain as saving at your mortgage rate,” says Martin Lewis on MoneySavingExpert. “If you’ve a 3% mortgage, you’d need savings paying at least this.” Lewis gives the example of a 2.99% mortgage versus a savings account paying 1% interest. If you have £10,000 in a savings account, it will earn £100 interest a year. Pay off £10,000 of the mortgage and you’ll save £299 a year interest, meaning you’ll be £199 better off.
But there are some things you need to consider before your pay off a chunk of your mortgage. Firstly, can you afford to part with your savings? We live in uncertain times and having an emergency fund to fall back on is more important than ever. Keep around six months’ worth of earnings in an emergency savings pot to cover anything from a broken boiler to redundancy.
Keep an eye on charges
Secondly, will you pay an early repayment charge if you overpay? “Most mortgage providers allow you to overpay up to 10% every year without incurring early repayment charges, but charge steep fees beyond that amount,” says Rachel Rickard Straus in the Mail on Sunday. Check what your mortgage deal allows before you make an overpayment. Finally, think about paying off other debts first. Your mortgage will have a lower interest rate than any unsecured debt you have, such as a credit card, overdraft or loan. There is no point in paying a lot of interest on these debts while you have excess money in the bank earning next to no interest, so clear these debts first.
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Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.
Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.
Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.
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