Is this a dumb idea?

Dave2012_2

Hi,

I'm a PhD student and have a decent interest free overdraft (although its being reduced every year) and get sponsored about £2500 quarterly. What I've been doing up til now is taking a huge chunk of this money after being paid from my current account into my ISA and living as close to my overdraft limit as possible with the idea of making some money. However, I've got more money pressures now so I'm struggling to do this without transferring money back from my ISA, which I really don't want to do. My question is, would I be better off being paid directly into a normal savings account (Egg), and then drip feeding from here into my current account as and when needed, still staying close to my overdraft limit, so my money is still earning interest? Or is this living a bit dangerously?

VickyA_2

No, it's not! It's exactly what I did when I was a student the first time around. However, you've got to be REALLY strict with yourself. I slipped up once, went over my interest-free overdraft limit (with loads of money tied up in 3 months notice period ISAs) and the bank charged me a fortune. Well, it was £25 which is quite a few takeaways in my book or a tank of petrol!

It's a good way of trying to get a bit more interest that you wouldn't have got from your current account!

David_Brent

Yea, I once went a little over my interest free overdraft by mistake, once I realised I phoned the bank and told them what happened and the agreed to temporarily increase my overdraft, until I paid in whatever was needed. So it stopped me Incurring any stupid account charge for going over.

heyhum

I'm not overly sure about this but be careful it may affect your credit rating.

If you're keeping your account overdrawn for a considerable amount of time without paying anything in this may count as a poor repayment history which is shared with lenders.

If this concerns you, get your credit file and discuss the overdraft with your bank.

johnllew

My question is, would I be better off being paid directly into a normal savings account (Egg), and then drip feeding from here into my current account as and when needed, still staying close to my overdraft limit, so my money is still earning interest? Or is this living a bit dangerously?

Yes and no. Provided you're organised and disciplined, you should be OK and will maximise the interest available. I would recommend using financial software like Quicken or Money to keep on top of things.

moneyandmountains

That initially sounds a good idea. Pay straight to savings account.
However, some student accounts require that your main source of income is paid into the student account.

Have you considered that a student account is probably not worth having, unless you need to borrow the overdraft money for living costs.

According to EPSRC, the minimum PhD student stipends are:
2004/05 - £10500
2005/06 - £12000
2006/07 - £12300

EngD's get more

At 2005/06 rates that is enough to open an Alliance and Leicester Premier Plus current account. (mine pays 5.5% AER). Of course, make sure that you submit your R85 for gross interest.
Note: this interest is only on the first 2k in the account. However, if you put surplus into your savings you should be laughing.

Of course, if a different supplier offers you a cash incentive to switch, then that may be better value, especially if there is an attached saving account.

The only benefit of student saving into a cash ISA is to gain the tax benefits for later years when you are working. If you are having cash flow problems (or in fact generally) then it is better to save into a savings account and towards the end of the tax year buy your ISA with a lump sum. This gives you the liquidity of savings during the year, but still with the long term ISA benefits.