This was bound to happen sooner or later. What has been a scary but fairly theoretical event of “stock market meltdown” and of “credit markets seizing up”, has to impact us all to some extent.

Luckily we did not have any savings in the Icesave, the troubled UK savings branch of an Icelandic bank which froze UK savings yesterday. A friend of ours did – and now they are stuck with no ready cash until who knows when. Ouch.

Mortgage: But we do have a mortgage and savings – ours are in an “offset mortgate” account with a UK bank. For those not sure what that is, it’s an account which pools together your mortgage debt and savings, so you only pay interest on the net amount. In the long run, it actually saves money on your mortgage borrowing and allows one to repay the mortgage early as long as you have a little bit of savings to offset against your debt.

Yesterday, we were getting quite worried about the further slump in UK equity markets. What if our mortgage provider goes bust too? Can they then take our savings, but leave us with a mortgage liability? I think this would make for an interesting court case. This probably has not been tried yet and I have no intention of becoming the first person to go through this.

Keep your savings safe: We decided to play it safe. Rather than risk leaving our savings to the mercy of crazed markets which can bankrupt any bank at present, we chose to repay some of our mortgage earlier than planned. I’d rather reduce the outstanding debt and have less money for now, than risk of losing the money completely. Not entirely happy about this situation but in the current situation, probably the best option.

Time to invest? I also still think now is the time to buy into FTSE as it’s so low. We bought a bit yesterday before midday. Given the UK Bailout package annouced this morning, the shares seem to be rebounding again, but if this slumps further and I feel brave, I’d probably buy a bit more. In 2 years’ time this might be seen as a shrewd move – I hope…

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