Well our mortgage is with First Direct. We have a joint mortgage account which is -£300,000, and then a series of savings accounts, one which is earmarked by us as "capital repayment" for the mortgage, but we also have savings accounts for school fees and other items (I prefer being able to separate some things as I agree that a single point can be confusing). At least one savings account is in my name only at present so you don't have to have everything as joint. We also have our joint cheque account.
All of these accounts are "linked", so that mortgage interest is calculated daily on the total net balance (this assumes that the overall balance is a negative one due to the mortgage). Ie I don't earn any interest on my savings or current account, but instead I see a reduction in my mortgage payment. I think that it is also possible to keep your mortgage payment constant each month and see the interest savings being deducted directly from your mortgage balance, so you see the mortgage reduce each month.
Now for my mortgage I would be paying interest at around 6% say, but that is paid out of my taxed income. So, as a 40% tax payer, the interest on my savings is currently earning me the equivalent of 10% gross. The other benefit for me is that I have a larger overall mortgage than I need. We probably only needed a mortgage of £200,000 when we bought this house, but could borrow up to £300,000. By having the extra £100,000 in the savings account it is not costing us anything, but if we ever needed it for either household improvements or say an investment opportunity then we have free and easy access to it (without having to apply for a further remortgage and pay for arrangement or valuation fees). In our case we have now fully offset our mortgage with our savings for school fees. As our youngest starts school this year we'll see a rise in school fees which may mean we go into a debt position again, but our position is very flexible.
The offset has worked for us as both get bonuses at different times of the year which can be invested in this way for the short term at a "tax-free" rate of interest. We use ISAs as well but mainly for equity investments. If you earn and spend a similar amount each month then you may not get much benefit, but we have noticed significant benefits as our income and expenditure is quite "lumpy" eg school fees are paid 3 times per year, and our other luxury would be a holiday or two. If your incoem and expenditure is fairly flat then this may not work as well, and you also may be able to find better mortgage rates by shopping around.