Calculate interest saved by offsetting savings against your mortgage. See the term reduction and equivalent gross savings rate.
Source: MoneyHelper — Buying a home
By Konstantin Iakovlev · Founder, Calks.uk
Last updated: · Verified against UK lender and FCA 2026 guidance
Rates verified: 28 September 2026
Interest Saved by Offsetting (lower payments)
£20,024.92
£166.75/month lower payment · about £1,350.00 of interest saved in the first year, £801.00 a year on average
Normal Monthly
£1,389.58
Offset Monthly
£1,222.83
Or keep paying £1,389.58 a month
Mortgage cleared 3 years 1 month sooner
£52,499.32 less interest, with your savings still intact
Tax-free return on offset savings
4.50%
Gross savings rate needed to match (40% tax)
7.50%
If your £500 Personal Savings Allowance is otherwise unused, a savings account would need 6.39% gross on this balance to match the offset. Figures assume the savings balance stays the same for the whole term and the rate does not change. With lower payments, the balance left at the end of the term equals your savings, which clear it.
Disclaimer
This calculator is for guidance only. It is not financial or tax advice: check anything you rely on against the official source or a qualified adviser. Rates and figures come from lenders' published rates and FCA guidance and are reviewed for 2026. Everything is calculated in your browser; nothing you enter is sent to our servers.
How It Works
An offset mortgage links your savings account to your mortgage. The savings balance is offset against the mortgage balance, so you only pay interest on the difference. With a £200,000 mortgage and £30,000 in savings, interest is charged on £170,000. The savings themselves earn no interest, but the mortgage interest you avoid paying is tax-free, which works like a return on the money without ever being taxed as one.
For higher-rate taxpayers, offsetting is particularly beneficial, because the equivalent gross savings rate would need to be much higher to match it. If your mortgage rate is 4.5%, a 40% taxpayer would need a savings account paying 7.5% gross (4.5% ÷ 0.60) to finish in the same place, and accounts paying that alongside mortgage rates at this level do not exist.
Setting a standard mortgage against an offset shows the interest saved over the term and in the first year, how much sooner the mortgage clears if you keep paying the standard amount, and the gross savings rate you would need to match the offset at your tax band. Enter the mortgage details and the savings balance you realistically expect to keep in the account rather than a peak figure, since the benefit only applies to money that stays there.
Offset mortgages have been thin on the ground in the UK since the 2008 crisis. The main providers are Yorkshire Building Society, the largest offset specialist, along with Coventry Building Society and Family Building Society. Scottish Widows Bank, part of Lloyds, stopped taking new offset customers in November 2023. Expect a rate premium of 0.2-0.5% over an equivalent standard mortgage. Average fixed rates were above 5.5% in September 2026 (Moneyfacts), so enter the rate you are actually quoted rather than the 4.5% default. Once the offset balance passes about £30k, the interest saved generally outruns that premium.
Tax is what makes the numbers work. Savings interest is taxable above the Personal Savings Allowance, which is £1,000 for basic-rate taxpayers, £500 for higher-rate payers and £0 for additional-rate payers. Hold £50k in an ordinary account at 4.5% and it earns £2,250, on which a higher-rate taxpayer pays £900 in tax at 40%, or £700 if the £500 allowance is otherwise unused. Put the same £50k against an offset at 4.8% and it saves £2,400 of mortgage interest with no tax at all, £1,050 a year more than the £1,350 left after tax on the savings route, or £850 more with the allowance. For additional-rate payers at 45% the gap is wider again, and savings income tax rises by 2 points in every band from 6 April 2027.
Offsetting suits higher-rate and additional-rate taxpayers holding more than £10-£20k in savings, the self-employed whose income swings and who want a buffer that also cuts interest, and anyone expecting a lump sum from an inheritance, a business sale or bonuses. It does nothing for a borrower with no savings to offset. Each alternative gives up something: a stocks and shares ISA can return 5-7% tax-free and commonly beats the mortgage rate over 10+ years, Premium Bonds have an average prize rate of 4.35% from the September 2026 draw, tax-free but not guaranteed, and ordinary savings are simpler with no tax advantage. What the offset adds is instant access to the money while it works at the mortgage rate, which is higher than savings rates.
Example: £250,000 mortgage at 4.5%, £40,000 savings
- First-year interest without offset: about £250,000 × 4.5% = £11,250
- First-year interest with offset: about £210,000 × 4.5% = £9,450, a saving of about £1,800
- Lower payments: £1,167.25 a month instead of £1,389.58, and £26,699.90 less interest over 25 years
- Same payments: the mortgage clears 3 years 11 months early, with £66,373.62 less interest
- Equivalent gross rate (40% taxpayer): 4.5% ÷ 0.60 = 7.5%
Source: MoneyHelper — Buying a home
Frequently Asked Questions
- How does offsetting my savings cut the mortgage interest?
- Linking your savings account to the mortgage means interest applies only to the difference between the balances, so £30,000 in savings against a £200,000 mortgage leaves you paying on £170,000. The savings earn nothing, yet the tax-free interest you avoid works like a return on them. The effect also shortens the mortgage term if you keep paying the standard amount, and on a £250,000 mortgage at 4.5% with £40,000 offset it is worth about 3 years 11 months off a 25-year term.
- Which UK lenders still offer offset mortgages?
- Choice has been limited since the 2008 crisis. Yorkshire Building Society is the largest specialist, alongside Coventry Building Society and Family Building Society. Scottish Widows Bank, part of Lloyds, stopped taking new offset customers in November 2023. Expect to pay 0.2-0.5% more than an equivalent standard mortgage, so 4.8% where a standard product is 4.5%. That premium is worth accepting once the offset balance is big enough for the interest saved to exceed it.
- How much in savings do I need for an offset to be worth it?
- As a rough threshold, an offset balance of about £30k or more usually covers the 0.2-0.5% rate premium and leaves you ahead. Below £10-£20k the benefit is thin, and with nothing in the account it is zero. Your tax rate matters just as much, because a 40% or 45% taxpayer gains far more from tax-free interest saving than a basic-rate payer who still has a £1,000 Personal Savings Allowance to use up.
- Is an offset better than a cash ISA or Premium Bonds?
- It depends what the money is for. Premium Bonds have an average prize rate of 4.35% from the September 2026 draw, tax-free but not guaranteed, while a stocks and shares ISA has returned 5-7% and tends to beat a mortgage rate over 10+ years, which makes it the stronger long-term home for money you will not touch. Ordinary savings are simplest, though the interest is taxable. An offset earns nothing on paper, saves at the higher mortgage rate, and leaves the money available at any moment, which suits a short-term buffer.