APR vs. Investment performance: is it that simple?

Question

I have a home loan, with an APR of 1.71%, and a savings account, with a state-regulated performance of 2.5% tax-free.
Is choosing where to put my money (ie. pay back the loan, or put the money in savings) as simple as 1.71 < 2.5 => Save it (and in general, save the money if you can get better than 1.71%), or is the math more complicated? If so, could you explain that math to me?
For the purpose of this question, let's assume that quality of life, usefulness of the savings, opportunity costs and so on do not matter.

D Stanley · Accepted Answer

If the savings account pays 2.5% on any balance amount (i.e. no minimums or maximums), then yes it would be better to put money in the savings account vs the mortgage. You could either let it grow and pay off the mortgage once the account balance equals the principal owed, or periodically withdraw some funds to make extra payments (reducing the amount of mortgage interest paid).
Other things that may change the equation, though:

Availability of a tax deduction for mortgage interest (reduces the effective after-tax mortgage rate)
If you are paying PMI or other mortgage insurance because you owe more than 80% of the loan value
Floating-rate mortgage (savings might be better now but could change over time)
Prepayment penalties
Cap on savings account balance (just limits how much you can exploit the difference)
Other debts (typically the highest interest rate debt should be considered first)

TomTom · Answer

Generally - yes. Take a loan at lower interest, invest at higher interest. Happens all the time. Make sure you do not run a serious risk of not being able to get out of the deal when interest rates changes and make sure to read the samll print.
Also make some math on relevance. You right now talk of 0.79% per year. That is pathetic, as total amount, unless you can run millions on it. On a 100.000 setting (currency is irrelevant) that is 780 per year, 65 per month (so for 100k EUR that is 65 EUR per month profits). Not sure you want to do all that hassle for that amount of money.
That said, on the other side (foregoing state regulated performance) it is not exactly harder than being able to look around to get 8%+ per year+ for EUR at the moment, if you know where to look (spend some time on google). THAT would change the difference seriously and make this an endeavour that is worth something.

APR vs. Investment performance: is it that simple?

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