Mortgage Overpayments vs Savings Accounts
- Nick Parker
- Dec 28, 2025
- 3 min read
Updated: Jan 12
Summary
This article explains how mortgage overpayments compare with saving money in a UK savings account, including interest rates, flexibility, and long-term cost impact. It is for general information only and does not provide financial advice.
If you have spare money each month, should you overpay your mortgage — or put it into savings?
This is one of the most common questions UK homeowners ask, and the answer depends on interest rates, risk, and flexibility. There’s no single right answer for everyone, but understanding the trade-offs can help you make a confident decision.
Comparing the returns
A simple way to compare overpaying with saving is to look at interest rates.
If your mortgage rate is higher than your savings rate (after tax), overpaying often provides a better guaranteed return.
If your savings rate is higher, saving may make more sense — particularly if you value access to the money.
Mortgage overpayments effectively deliver a risk-free return equal to your mortgage interest rate, because every pound overpaid permanently reduces the interest charged.
You can see how this works in practice using our
The flexibility factor
Returns aren’t the only consideration — flexibility matters too.
Savings accounts
Offer easy access to your money
Are ideal for emergency funds
Provide peace of mind if circumstances change
Mortgage overpayments
Lock money away until you sell or remortgage
Reduce long-term interest costs
Help you become mortgage-free sooner
Because of this, many homeowners choose a balanced approach — saving some money while also making modest overpayments.
What about ISAs?
Cash ISAs can be attractive because:
Interest is tax-free
Rates can be competitive, particularly for higher-rate taxpayers
If your ISA rate is close to or higher than your mortgage rate, saving into an ISA may rival the financial return of overpaying.
However, ISAs don’t reduce your mortgage balance and don’t shorten your term — benefits that matter to many homeowners.
How overpayments affect your mortgage long-term
Overpaying your mortgage doesn’t usually reduce your monthly payment by default. Instead, it typically shortens the mortgage term, which leads to greater interest savings over time.
We explain how lenders apply overpayments in
Even small, regular overpayments can have a meaningful impact, as shown in
Overpayment limits to be aware of
Most UK lenders allow penalty-free overpayments of up to 10% of your outstanding balance per year during fixed or discounted periods.
Both:
Monthly overpayments
Lump sum payments
count toward this allowance.
We explain how these limits work in
Fixed rate mortgages: extra considerations
If you’re on a fixed rate mortgage, flexibility becomes even more important.
Overpaying is usually allowed within your annual limit, but exceeding it can trigger early repayment charges.
We cover this in detail in
In some cases, saving instead of overpaying during a fixed rate — then reassessing later — can be a sensible approach.
Lump sums vs monthly overpayments
Whether you overpay monthly or via lump sums can also influence your decision.
Monthly overpayments are easier to manage and budget
Lump sums can reduce the balance faster if timed correctly
We compare both approaches in
A sensible UK strategy
For many homeowners, a practical approach is:
Build an emergency fund (3–6 months of expenses)
Review your mortgage interest rate
Overpay modestly while continuing to save
Reassess when your fixed rate ends or when remortgaging
This gives you both financial flexibility now and lower costs in the future.
Is overpaying worth it for you?
Whether overpaying or saving is better depends on:
Your mortgage rate
Available savings rates
Your need for access to cash
Your long-term financial goals
We explore the broader decision-making process in
For longer-term planning — including how savings and overpayments affect remortgaging — the
Advanced Mortgage Planner preview lets you compare scenarios over time.
Final thoughts
Mortgage overpayments and savings accounts each have a role to play.
Overpaying can reduce interest and shorten your mortgage, while savings provide flexibility and security. The right balance is the one that fits your circumstances and gives you confidence in your financial plan.
👉 Use our free mortgage overpayment calculator to compare overpayments and see how quickly you could reduce your mortgage.
