Help me work this out please

[Beemer30]

I've borrowed £15,000 from the bank at 4.5% for 60 months.

I need to spend £10,000 of it to do work to my house. The bank wanted near 7% if I borrowed it by adding to my mortgage.

I was going to pay the other £5,000 back to the bank but I'm not thinking if keeping it and putting it in my Santander 123 account where I get c.3% interest. If I do this am I only paying 1.5% interest on the £5k which will cost me about £3.20 a month for the 60 months I have it? Please don't flame me if I am totally wrong here!

The principle is right, haven't checked the actual maths. have you used an interest calculator and are those the APR figures?

Also if you earn more than your tax fee limit you will pay income tax on the 3% income earned.

Hi yes I used the loan calculator on the money advice service. I'm currently on maternity leave getting smp. Only work 2 days a week on a not great wage. I don't pay tax on my wages as I am well under the threshold.

If you pay it back early are there any charges? I can't understand why you would borrow and at for money you don't actually need?

Surely you'd be better paying back the amount at 4.5% (assuming no fees for early repayment), than earning 3%?
Unless you want the cash for some reason?
The debt has a higher interest than you can earn, so get rid as soon as you can.

How did you get to £3.20? Compound interest is a pain, and I cba to calculate, sorry.

Why would you not want to pay it back if you don't need the money and it would cost you more? And why have you borrowed it if you don't need it?
As another poster said, if you pay tax you will be taxed on the 3% interest at your highest rate (20 or 40%) so that takes the income from it down a bit. And if you are keeping it because you need it to spend, then obviously once it's spent you won't earn interest on it but you will still be paying interest on the loan. I'm at a complete loss as to why you'd want to do this, tbh, unless there are hefty repayment penalties?

Sorry have just seen you don't pay tax so that's not a factor. Still don't understand what the benefit to you would be?

Sorry should have explained it better. I originally applied for the money to do a bigger project on my house. Changed plans now so need less. If I had reapplied for the loan I may not have got the loan at 4.5%. I can pay money back with no penalties. My reason for now wanting to hang on to the money is that I may have to give up my job due to child care issues and whilst I appreciate the borrowed money is going to cost me I want access to some cash if I end up being without a job. We will be okish on DPs salary as it stands.

If you can pay it back without penalty then do that but start saving now the amount you would be repaying on that extra £5k.