December 2022
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Avoid two simple savings mistakes millions of people make

The stupidest mistake anyone, with even just a few pounds in a bank or building society account, can make is not to pay off all their credit card and store card bills in full every month. After all, why earn 1% (or 2% if you’re lucky) on your savings and then pay 15% to 20% or more on your credit card debts?

A second common mistake is a bit more subtle, but a lot more expensive – it is to put money into a pension scheme while still paying off a mortgage. As a rule of thumb, because of the interest on your mortgage, with a 25-year mortgage you’ll end up paying back about twice what you borrow. So, borrow £150,000 and you’ll pay back £300,000. Say you could pay back £2,000 extra a year for the first ten years of your mortgage – then for a payment of just £20,000 you’d be saving yourself almost £40,000 in repayments. You’d be doubling your money, with no risk.

Now say you were in your thirties and instead of repaying your mortgage early, you put this £2,000 a year into your pension. Of course, you’d get about 20% added on from your contribution being tax-free. But for the next thirty or so years, your pension fund manager would be lopping off about 2% to 3% a year in all kinds of charges and dealing costs and penalties for this and that. Hopefully there would be some growth. But as millions who have recently reached retirement have found out, after fund managers have pocketed their share, there’s not too much left for pension savers.

So check your own situation. But if you’re paying off a mortgage, you can often double your money by paying it off early. There are not many pension schemes which will give you anything like that kind of growth in spite of the usually exaggerated claims of their salespeople

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