Up until recently, we’ve had pretty much all our financial dealings with one bank, and had separate savings accounts for short-term, long-term, children’s nest eggs, and credit cards. This has all made a certain amount of sense as interest rates were all reasonable and it meant we could easily keep track of each “pot”.
However, we’ve now gone and done something complicated – bought our first house. This means that by far the largest interest rate is on the money we owe as the mortgage, and thus to my eyes there seems little point in keeping much in the way of liquid savings. We’re set up with our new bank as follows:
1) Account 1 is the loan account, free re-draw facility on overpayments
2) Account 2 is the current account, with free offset against the interest on the loan
I think it makes financial sense to treat mortgage overpayments as our previous “long term savings”, the offset account as “short term savings”, and use the credit card where possible and pay it off in full each month.
My question is what should I do about the two children’s accounts? To me it seems to make sense to pile all that against the mortgage also, but is there a way I can set myself up to keep an honest track of the interest each nest egg would have been earning in a savings account? That way I know how much we’d have to re-draw when it’s time to cough up without having effectively stolen compound interest from my own children.