Ever wished your mortgage rate was the same as your savings rate, or vice versa?

It can be, if you switch to an offset!

If you've got savings at the moment, chances are they're earning a dismal rate - maybe three per cent if you're lucky. Then there's tax deducted on that.

How would you prefer it if you could really put that money to work, earning you the equivalent of around six per cent interest, and letting you pay off your mortgage four or five years early?

Following last week's article on saving our savers, we've been looking at offset mortgages and wondered whether enough savers know there's a way of getting the best of both worlds.

Offsetting: the basics

If you're a saver, you earn interest. If you're a homeowner with a mortgage, you pay out interest. So you need to get these interest rates balanced out to work in your favour.

Unfortunately, that's hard to do with separate accounts.  Base rates mean savings returns are low, but mortgages are cheap. The cost of borrowing is a bigger drain on your finances than any boost you'll get from saving.

Offset mortgages let you combine the two balances and even out the two rates. If your mortgage is more than your savings, you only pay interest on the difference between the two. (Read our offset mortgages guide for an illustration).

How to understand offset rates

Look at it as a savings rate on steroids. Or a mortgage rate on a diet!

Let's take Woolwich's 3.49% tracker offset mortgage as our example. Your savings and mortgage are still in separate 'pots', so you can still keep track of your balances separately (and dip into your savings at any time). However, there are three crucial differences to having separate accounts:

• Your mortgage interest is calculated daily, so every pound is working for you all the time.
• because you don't "earn" the interest as credit interest, you aren't taxed on it.
• thanks to the compound effect (i.e. interest on interest), it's a dramatic difference to savings which only pay out yearly.

For example, one lender is offering an offset mortgage that combines your current account, savings and mortgage balances to reduce the interest you pay.  The rate is around 3.5 percent, a nice low one for mortgages but a great one for savings.

So you can consider it as a mortgage rate in the usual way – but you could also consider it a tax-free, compounded savings rate!

Tax-free? How?

When you're earning interest, typically it gets treated like any other earnings: taxed at 20%, or 40% for higher-rate taxpayers (unless your savings account is part of an ISA). So you end up with less than the advertised rate. A problem.

When you've got your savings being set off against your mortgage, you don't earn the interest: instead you have it reduce what you pay. This means nothing is taxable. Problem solved!

You never actually see interest accruing on your savings, so you might say that's less rewarding. But you also don't see the interest on your full mortgage being added to your mortgage account - so you do see what you owe going down a lot faster. That's motivational.

Years off your mortgage: an illustration…

For as long as your mortgage balance is greater than your savings, you are accelerating the rate at which you're repaying your mortgage. Done properly, offsetting could give you a few extra years of mortgage freedom, without an extra pain now.

Curious about how a regular customer could benefit, I asked one mortgage company for a forecast.  I found out that…

• with £80,000 mortgage balance on a £120,000 house
• with £10,000 in savings and £100 being saved each month
• with a 'best alternative' of 2% on savings available elsewhere
• with a 20% tax rate and an average current account balance of £1,000

...I could pay off my mortgage four years and three months early.

That's four years of financial freedom I'm sure I'll appreciate when retirement is looming.

Who could benefit from offsetting mortgages and savings?

If you are any of the following:

• you have savings over £5,000
• you're a higher rate taxpayer
• you save regularly for your annual tax bill
• you often have excess funds left in your current account
• you already have savings earning less than 4 per cent
• you're worried you'll still be repaying your mortgage in retirement

...you could benefit from mortgage advice from an FSA-authorised independent adviser about offset mortgages.

- compare tracker mortgages

- compare discount mortgages

- compare fixed rate mortgages

Share your views

We think offset mortgages are a clever way to pay off your mortgage early without putting yourself under financial pressure.  However, if you have a view on the matter, or experience of this area, do share your thoughts in the comments below...

Following on from our focus on the recently merged super-bank Santander, we thought it would be good to look at the more traditional end of the spectrum - a well-known building society.

- skip to the full article and compare Yorkshire mortgages

Founded in 1864, the Yorkshire Building Society now has assets of £20 billion and is the second largest building society with 143 branches, 75 agencies and 2,300 staff across the UK. It has a traditional business model in terms of capital strength, high levels of liquidity and a solid retail funding base.

It is committed to mutuality and is determined to return real financial benefits to its two million members. Its purpose is to maximise long-term benefits for a growing membership.

As a building society the Yorkshire's focus continues to be on the traditional values of enabling people to buy their homes and providing a safe home for members' savings.

Mutuality

The Yorkshire is committed to remaining a mutual organisation and all of the benefits that it brings. Mutuality puts the customer back in control.

Building society members enjoy the protection of the Building Societies Act. As a result of the Act, the interests of all existing and future members must be taken into account when mapping out the Society's direction.

That forces the Society to constantly think about what's best for members not just today, but in the medium and longer term as well.

Mortgages

The Yorkshire has a mortgage book of £15.6 billion and has 273,000 borrowers.

It offers mortgages specially tailored for first time buyers, mortgages for people moving home or wishing to change mortgage provider. It also offers offset accounts for people who wish to combine their mortgage and savings.

Recently it launched a 2-year fixed rate mortgage at 3.29%, up to 60% LTV, with a £1,195 fee and currently the lowest 2-year fixed rate available direct to customers.

It has also recently strengthened its first time buyer range with the launch of a new member-exclusive mortgage for those with a smaller deposit. The new offering is a 5-year fixed rate at 6.49% available up to 90% loan to value (LTV) with free valuation and legal fees and no upfront fees. The mortgage is available to first time buyers who have either been a Yorkshire member for over 12 months or who have a close family member or friend who has been a Yorkshire member for over 12 months.

The member exclusive product widens the range currently offered by the Yorkshire to first time buyers who can also choose between a 3-year fixed rate mortgage at 5.84% and a 5-year fixed rate product at 5.99% at up to 85% LTV with free valuation and legal fees, 1% cashback and no upfront fees.

- compare Yorkshire Building Society mortgages

The merger

Yorkshire Building Society saving and borrowing members, like the members of Chelsea Building Society, have voted in favour of the merger between the two societies.

Bringing the two organisations together will create a second major force in the building society sector and a competitive and secure alternative to the retail banks. The enlarged Society will have capital ratios amongst the strongest of any major UK lender, bank or building society and a secure funding base.

The merged Society will have 2.7million members, assets of £35bn and a national network of 178 branches.

It's never a safe bet to try and second guess what will happen when the Bank of England's Monetary Policy committee meets to decide what it will do with interest rates.

But with the announcement due out at noon today, we take a look at the background.

We may have officially moved out of recession last month but our economy is still in a fragile state, having previously contracted for six consecutive quarters, the longest period since quarterly figures were first recorded in 1955. Indeed, we were the last major economy still in recession with Germany and France coming out of recession last summer and Japan and the USA coming out of recession last year.

Inflation

The UK recovery is all about consumer confidence and the easiest way for the MPC to bolster this will be to hold interest rates steady.

But with inflation also rearing its ugly head again last month could we be in store for a rise in the base rate?  The rise in the Consumer Prices Index to 2.9% in December from  1.9% in November has certainly led some commentators to believe interest rates would have to go up.

Yet minutes from the Bank's previous meeting showed that the spike in inflation was indeed expected.

And then there's the whole issue of quantitative easing (QE) to take into account.

The Bank of England's QE programme swaps high street banks' assets, such as bonds, for cash, so that the banks would lend more money to both individuals and businesses.

But so far all the evidence seems to suggest that the banks are sitting on the cash rather than lending it out. That means the effects on the economy have yet to be seen.

That being the case it's difficult to see what kind of state the UK economy is really in. To do that we need a period without quantitative easing, without the car scrappage scheme and without any changes to VAT to see what's really happening.

While it seems inevitable that inflation will shoot through the 3% ceiling, wage inflation is far from matching that figure. And with a general election just around the corner it seems unlikely that the bank will look to move rates this half of the year.

One thing is certain though and that is that the next move in interest rates will only be up. For borrowers on tracker rates that could be cause for concern. Just last week Santander reported that demand for its tracker deals had plummeted as more homeowners started to look at fixed rates.

"A significant number of people could remortgage in the next six months and among those considering their next deal there is a potential for a fall in demand for tracker deals," Phil Cliff, director of mortgage marketing at Santander said.

"Borrowers have seen a large number of highly competitive fixed deals come on to the market recently and with many commentators predicting a base rate rise this year, homeowners now seem more inclined to play it safe with a fixed rate deal."

To fix or not to fix

Remember, if you are looking to fix your mortgage rate while your existing mortgage lender may be able to help you it pays to shop around.

There are a whole host of deals that will be available to you and many will be better than those on offer from your existing lender.

You should speak to an independent whole of market mortgage adviser to make sure you have access to the best deals available.

- compare fixed rates

- compare variable rates

Official figures show us coming out of what has been a rather life-changing recession for many of us. During the recent hard times more people than ever are seeking alternative ways to improve their income, or indeed find an alternative after redundancy.

One form of income that has caught our attention is trading in foreign exchange (Forex or FX), and according to trader coaching company Knowledge to Action, foreign exchange trading is more profitable for individuals than other types of trading, and has been rapidly growing in popularity in recent years.

However it may be a daunting prospect for anyone wanting to try their hand at it, as it can seem complex and confusing, so we've teamed up with Knowledge To Action, who are offering free places for their Ultimate Forex Secrets Seminar 2010. There are Forex seminars taking place all over the country every week, so there’s bound to be one near you - find your local event and get started:

- click here to enquire and get started.

It's been promised for months, and now it's nearly here: the first new bank to open in the UK's high street for more than 150 years. The Metro Bank's first branches are expected to open later this month, once a banking licence has been obtained from the Financial Services Authority (FSA). Within 10 years, it's reported, the plan is to grow to around 200 branches. They'll all be in the London area, so won't be available to the wider UK population. But as this is the first in a series of expected new bank launches - another four are expected to open this year alone, it's interesting to see how this bank plans to make itself different. What does it say about how customers want to bank?

These are some of the services and features that it’s reported the new bank will offer:

• Branches will be open from 8am-8pm, Saturdays and Sundays included.
• They won't be called branches, they'll be called stores.
• Customers will be able to open an account in a branch in about 20 minutes - including having cards issued.
• Customers can pay small change in directly, through coin-counting machines.
• Safe deposit boxes will be available in each branch.
• The bank will only lend out in mortgages what they take in by way of savings deposits.
• It will be privately-owned, though as an FSA licensed bank it will be covered by the £50,000 guarantee on deposits.
• Customers will be able to bank online and will receive text alerts to update them on their finances.
• They'll be able to spend a penny in the branch – each will have customer toilets.

But is this what a customer wants from a branch? For me, the convenience of the early and late opening hours is good. I like the ability to open an account quickly, and I like the paying-in facility that allows you to pay in lots of coins. But I think the chances are that if this takes off, this bank is as likely to have long queues as any other. I've never been in a bank yet where I could ever imagine opening an account and having debit cards printed could possibly get done in 20 minutes. Before now I've waited 20 minutes just to collect a new card or pay in a cheque, so I'd be most impressed if this claim of speed turns out to be possible. But I must admit I'm sceptical. And if it does work, surely it must slow down once the bank gets very popular.

Whether Metro Bank is a runaway success or not, it and the other new banks could well inspire its competitors to make changes to their customer service. So, what do you want from a bank? Are branches important, or is a fast and efficient internet site more to the point? Do you want to go to a bank on a Sunday? Would you ever use a safe-deposit box?

What other services would you like a bank to offer, whether through a branch or online? Does customer service matter - or is it all about the interest rate you're offered? And in any case, would you trust a new bank - or do you prefer to stick with your tried and tested provider? Let us know in the comments below.