Buffer zone in your current account?

wigginsmum

Assuming that you're not overdrawn, do you try and leave some money in your current account each month as a buffer zone to avoid going overdrawn, or do you run it down to zero before your next lot of money comes in?

Fedz

Good question and one that would make a good poll

I try not too use it at all but, I try to avoid using more than half at all costs, in case of something 'overseen' - not always possible but, as I'm paid weekly it always gets topped-up quite quick.

To answer your question - I'm a 50/50 person

Kind regards

wigginsmum

Do you mean you try not to use up more than half of your income?

I'm busy reorganising and planning and am really not sure whether to chuck all my money at my cards to clear them as quickly as possible and use my overdraft if necessary, or whether to deliberately leave some over each month as a safety net.

Fedz

Using the debit card over the credit card can have serious consequences as it makes it easier to go overdrawn and then get charges whereas, you can avoid using the credit card easier and pay that plus it keeps everything seperated for ease.

It's tempting to think to use the debit card over the credit card (in my case) as the apr is lower on my overdraft rate than that of the credit card!

All I end up doing is spending both!

If your trying to pay of a credit card then yes I'd stop using the credit card and stay within the debit card limits and pay the credit cards and use the debit card but, as I say this highers the risk of going over your autherised overdraft limit easier plus the temptation of using any available credit on the credit card - to me anyway

weaver

I try and keep a £500 buffer zone in my current account - not always possible I must admit.

This covers any excessive spending on my credit card (which I always pay off in full ) or spending my other half forgets to mention.

I also keep a couple of hundred in an internet savings account (better interest rate than currant account)to top up my current account if I do go a little spending crazy. I can transfer using the internet and not have to panick and rush to the bank)


The answer to this question all depends on how hand to mouth your finances are really.

ps - forgot to mention I use my credit card for all everyday purchases i.e motor fuel and food etc, I very rarely use a debit card as I forget when ive used it.

YorkshireBoy

wigginsmum wrote:

I'm busy reorganising and planning and am really not sure whether to chuck all my money at my cards to clear them as quickly as possible and use my overdraft if necessary, or whether to deliberately leave some over each month as a safety net.

Isn't it just a simple risk assessment that's required?...

Risk = Likelihood x Severity

The likelihood of going overdrawn will be determined by how well you understand the credits and debits hitting your account, and how reliable they are. For example, does your salary always hit the account on the same day each week/month. Have you got a list of all the monthly/annual DD's anywhere? Do you know how much you spend each week via cash withdrawals, switch cashback etc? In short, the likelihood of going overdrawn will simply depend on how well you manage your finances.

Severity is basically the penalty for getting it wrong. There are two things that can go wrong here...

1. You have money in your current account paying 0.1% gross whilst you have credit card debt at around 15.9% APR+.

2. You pay too much off your cards and then have to dip into your overdraft at around 12.9% EAR+



Have you compared the EAR on your overdraft with the APR on your credit cards to help you make the right decision?

wigginsmum

I know to the penny what's in my current account at all times and tally it daily against my online banking; I have my spreadsheet set up like a bank statement (with credits and debits) projected at their current amounts out to Dec-10 so I can plan longterm; obviously that'll need to be tweaked when anything changes. I'll be in a position to clear my overdraft completely by next January (while paying more than the minimum on my credit cards in the meantime). I'm reducing the O/D by about £100/month by non-use as I feel uncomfortable leaving it static until January (yes I do understand the snowballing issue and that I'm paying more interest than I need to on the cards in the meantime, but I want to keep the bank happy).

The APR on my O/D as it stands is 9.5% which is lower than both my cards, so I'm throwing all I can at the cards, and will up them both once the overdraft is clear.

I was just curious really as to how other people manage the 'buffer zone' if they have one and how much they leave as emergency balance each month, for when my current account is back in credit.

Karnam

shockingly enough my buffer zone ie.the money always available in my current a/c is only £20. i tend to spihon off any extra into savings for more interest. no point having loads of money in a current account with little interest.

YorkshireBoy

wigginsmum wrote:

I was just curious really as to how other people manage the 'buffer zone' if they have one and how much they leave as emergency balance each month, for when my current account is back in credit.

Then my answer to this (and your earlier) question is £300.

BTW, sorry for my earlier response - I didn't realise you had so much debt (or that you were managing your finances as well as you are, as verified by your later post).

wigginsmum

No worries - every opinion is helpful

Joe_Bloggs

I like to maintain a £100 balance at all times in my flex account. I have an esaver account that I can transfer to the flex account instantly. From April I will get 4.25% on balances in the flex account and from last month 4.5 % from a competative 4.75% on my esaver.
I still have another current account that automagically maintains a constant current balance from a local savings account. Alas this feature is not implemented by the Nationwide. I have a £1K overdraft facility with the Nationwide. I have never used it for more than a few hours.
I understand the punitive magnitude of persistant bank charges and the reason to keep a buffer to prevent them from occuring and re-occuring. Often it is the magnitude of banking penalties that ensure that these penalties happen over and over again. A credit account buffer is another word for savings. If you don't have it , you are at the mercy of the bank's disproportionate and hence possibly illegal bank charges.
J_B.