If your cards, overdrafts and loans are behind you, that's a big achievement, so take a moment to enjoy it. Now spare money has two obvious homes: your mortgage or a savings account. Both leave you better off. The question is which leaves you more better off, and how much flexibility you're happy to give up.
If you still have other debts, start with overpay your mortgage or pay off debt first? Clearing those almost always comes before either of these.
Emergency fund first
Before comparing rates, have some money you can reach quickly. A common guide is three to six months of essential spending in easy-access savings. Knowing it's there makes everything else feel calmer.
Money paid off a standard mortgage is hard to get back. If your boiler breaks or your income drops, you can't usually ask your lender for it, and you may end up on a credit card instead. Some flexible mortgages let you borrow back overpayments, so check yours.
The simple comparison
Overpaying saves interest at your mortgage rate, with no tax. Saving earns interest at the savings rate, after any tax. Whichever is higher wins on the numbers.
In October 2026, the Bank of England base rate is 3.75%, and the top easy-access savings accounts pay around 4% to 4.5%. The average rate on new mortgages is about 4.60%.
Tax on savings
Personal Savings Allowance: basic-rate taxpayers can earn £1,000 of interest a year tax-free, higher-rate taxpayers £500, and additional-rate taxpayers nothing.
Interest above that is taxed at your income tax rate. From April 2027, savings tax rates rise by 2 percentage points, to 22%, 42% and 47%.
Cash ISAs are tax-free. You can pay in up to £20,000 a year. From 6 April 2027, the cash ISA limit for under-65s falls to £12,000.
A worked example
Alex has £10,000 spare, a mortgage at 4.6%, and finds a savings account paying 4.5%. Here's what each choice is worth after 5 years:
Choice | Rate after tax | Gain after 5 years |
|---|---|---|
Overpay the mortgage | 4.6% | about £2,580 interest saved |
Save, no tax due (ISA or within allowance) | 4.5% | about £2,520 |
Save, basic-rate tax on all of it | 3.6% | about £1,970 |
Save, higher-rate tax on all of it | 2.7% | about £1,440 |
Tax-free, the two are almost level, and saving keeps the money within reach. Once tax is due on the interest, overpaying pulls clearly ahead.
See what an overpayment does to your own mortgage with the mortgage payoff calculator.
Other things to weigh
Rates change. Savings rates are often variable, and your mortgage rate changes when your deal ends. Compare again at each remortgage.
Overpayment limits. Most lenders allow up to 10% of the balance a year before an early repayment charge. See how to pay off your mortgage faster.
Saving now, overpaying later. You can save during a fixed deal and pay a lump sum off when it ends, when early repayment charges usually stop. That keeps the money flexible in the meantime.
Workplace pension. If your employer matches contributions, getting the full match is usually worth more than either.
Peace of mind counts. Some people overpay anyway because a smaller mortgage just feels safer. That's a perfectly fair choice, as long as you keep an emergency fund.
A simple plan
Clear any debt that costs more than your mortgage.
Build an emergency fund in easy-access savings.
Compare your mortgage rate with the best savings rate you can get, after tax.
If saving wins or it's close, save, ideally in a cash ISA. If the mortgage wins, overpay within your allowance.
Review it each year and when your mortgage deal ends.
When to get help
If you're struggling with your mortgage payments or other bills, talk to your lender early. Lenders must treat customers in financial difficulty fairly. Free, confidential advice is also available from StepChange, National Debtline and Citizens Advice. You'll find them on our financial resources page.
Examples assume rates stay fixed for 5 years, interest is compounded monthly, the full interest is taxed in the taxed rows, and the overpayment stays within the lender's allowance. Tax rules are for the 2026/27 tax year, with the April 2027 changes noted. Your figures will differ. This guide is general information, not financial or tax advice.