Savings and borrowings - what's the point of having both!
Suppose you have £10,000 in savings and a £50,000 mortgage. Your
income from the savings after tax might be £300pa (3% net) your
mortgage cost on £10,000 might be £600pa (at 6% rate) - this means
you are paying £300 per year for no good reason. It would be even
worse if all the borrowing was on a credit card say at 13% - then
you would be donating £1,000 to your bank each year! OK you can
juggle the figures, but the principle remains that you are borrowing
at a high rate and lending at a low rate - which is mad!
Ah, but what about the money as an 'emergency fund'. Well
by definition, if it is an emergency fund then you probably won't
need it. If however you do need it you then go and borrow the money
- which is only what you are doing at the moment.
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