ISA v being overdrawn

mboro

I have just recently opened up a student account and the overdraft is £1250.

I don't need the overdraft, so I was wondering if I should move it to an ISA and make some interest on it but then I worry about being over drawn.


Any thoughts or views?

paul5046

Is it worth it for £50. I'd say not.

graduate

You could move say £1000 into the ISA and that would in effect leave you with a £250 OD. From what I can tell whether you want to do it depends on a couple of thing:
1. How well you can manage your money.
2. How long you can leave the money in the ISA for and therefore what return you can expect?
3. If you think the risk (of going over your limit and being charged plus the effect on your credit rating) is worth it the return?

Lokolo

If its 0% then yeh why not. But make sure you put the money in the instant access ISA because in the future you may need it, or the bank may ask for it back!

Broke_Student

This is a common stooze with financially competent and disciplined students.

As you are a student I doubt you will be paying tax as you'll most likely earn below your personal allowance (£5k-ish). Therefore I would advise that instead of an ISA you deposit the overdraft balance into an instant access high street saving account, preferably one that has online banking. Doing this will allow you to pay back the overdraft quickly if the bank demands it back (i.e. if they see the account is not getting deposits) or if you really need the money in an emergency. Funds are generally more difficult to transfer out of ISAs and take longer.

The financial rewards are pretty good. Remember that you can call to extend the overdraft each new academic year and may have up to 2 years after graduating to pay it back. That could be £300 interest for half an hours effort (assuming about 6% gross and overdraft £1.5k when graduating and paying off 2 years later). Not bad at all.

You should however leave your money in an ISA and use this year's allowance properly if you think you will have cash in excess of the ISA allowance to save in the near future/when you graduate as your savings interest will be taxed when you're earning.

edit:
£1250 sounds like the overdraft amount Natwest gives in Year1. Am I correct? If so then another idea for you is to set up a direct debit of £100 from your student account to an e-savings account. Natwest has an offer on where they will give you £50 if you deposit £100 into a savings account for 12months by directdebit (see their website). You can make withdrawals from the savings so keep recycling £100 and keep £1150 permanently in the savings account.

Broke_Student

paul5046 wrote: »

Is it worth it for £50. I'd say not.

It takes no more than 10 minutes to do the transfer. How much do you earn per hour?

mboro

Thanks so much for your help and advice, I am having a long hard think about what I will do.

runciblespoon

Also be aware that the overdraft will show on your credit record. That's not a bad thing - showing you can successfully manage a debt like that will probably be a benefit if you want a loan/credit card/mortgage in future. But while you have the overdraft it'll reduce the amount of credit otherwise available to you - it might make it harder to apply for a credit card (especially if you don't go for one linked to your student account) or if you get one then the credit limit will be reduced. That's probably not a problem, but it's worth knowing.

a7man

I had 3 overdrafts when I was a student, maxed them all and put all the money in an ISA. Three years later and I had over £500 on top! I also kept asking for increases to get as much as I could (cheeky I know!).

I say go for it!! You wont get another chance for free money, plus it means in 3 years time if you need an extra few hundred, you dont have to use the overdraft, you can just use the interest!

a7man

runciblespoon wrote: »

Also be aware that the overdraft will show on your credit record. That's not a bad thing - showing you can successfully manage a debt like that will probably be a benefit if you want a loan/credit card/mortgage in future. But while you have the overdraft it'll reduce the amount of credit otherwise available to you - it might make it harder to apply for a credit card (especially if you don't go for one linked to your student account) or if you get one then the credit limit will be reduced. That's probably not a problem, but it's worth knowing.

In response: I never had any trouble after uni getting credit. I was offered a credit card at 1/4 my salary no problem.