One could be forgiven for thinking that there may be something of a flight to cash given the current volatility in the world’s equity markets. For those with mortgages there’s one product genre that could prove to be a useful ally in such circumstances: the offset or current account mortgage.

The structure of an offset mortgage is relatively straightforward in that your savings balance is offset against your mortgage balance with interest charged on the net amount. So if you have a mortgage of £100,000 and savings (held with the offset provider) of £15,000 you would be paying interest only on the £85,000 net balance. 

With an offset mortgage the various accounts (typically savings, current account and mortgage) are maintained as separate accounts with the balances offset against each other to determine the amount on which interest will be levied. Current account mortgages (CAM) however have all the constituent parts held in the same account and resemble one really large overdraft. Both types effectively achieve the same result. 

There is a downside to offsets and CAMs: the interest rates charged tend to be at a slight premium to traditional mortgages but their innate flexibility may be enough to justify this premium for many customers. This is because you would effectively earn interest on your savings at the same rate that the mortgage is charged and, crucially, not get taxed on the savings element because it is offset against the mortgage balance.

Customers who should contemplate the offset route typically include those with reasonably high levels of savings in a deposit account, higher rate taxpayers, the self-employed (who may have irregular income and expenditure patterns) and buy-to-let investors. The ability to make underpayments or overpayments and to access your savings balances completes the picture.

If the offset permits you to have a current account as part of the package that’s an additional plus point.   The ability to park some cash when reluctant to be fully involved in the stock market and make the cash work for you, while retaining the ability to access it for other purposes, make another potentially powerful argument for the offset mortgage.