End of free banking..

Fiddlestick

LongTermLurker wrote: »

Why does the option of an overdraft cost the bank money?

Because making that overdraft available to you is a potential liability that they need to take into account and underwrite.

In other words, what's the chance that you will draw out all the credit that they are willing to extend to you and then just disappear?

Unlikely I know but it's still a potential liability.

ERICS_MUM

LongTermLurker wrote: »

Why does the option of an overdraft cost the bank money?

In balance sheet terms, overdraft limits and credit card limits are classified as liabilities, i.e. they represent the total amount of money a bank might have to lend customers at any one time.

Obviously these liabilities have to be backed by cash or "liquid" assets, not penny for penny but a certain percentage as set by the Bank of England. This money has to be held with the Bank of England as collateral and cannot be used to earn interest.

If the customer uses the overdraft or credit card they will pay interest to the bank, but if the limits are not used then the bank has lost income on the money they hold at the Bank of England. A big chunk of the collateral a bank has to hold at the Bank of England comprises money in customers' deposit accounts, on which the bank has to pay interest. They actually pay out interest they are unable to earn.

Sorry, this sounds like an answer to an Institute of Bankers exam question ! Hope it makes a bit of sense.

dizziblonde

I walked away from the Halifax when the clowns started with the idiotic overdraft charges... felt great to know I wasn't subsidizing half this forum's free fivers anymore

Not always easy to be able to do that though - if you're already dipping into overdraft by the end of each month (I'm not perfect - few are, despite how some idiots on here like to sneer and throw scorn... usually the ones obsessed with free fivers), then whacking up the charges can really throw things out of kilter for people. It's rubbish, and it's why I jumped at the chance when we got a small bit of spare cash to clear out the small overdraft I was in and close my Halifax account down - I don't agree with what they're doing, I think in the long term it'll backfire (and they'll pull the free fivers), and their adverts were getting on my wick - so I voted with my feet.

Joe_Bloggs

I am dubious/sceptical as to how an unused credit facility can be classed as a liability. Surely the pricing of the credit facility is more than paid for by those that make use of it. If not then the line of credit is running at a loss and makes little sense to offer it.

Can the credit providers hedge against the potential use of their unused credit facilities offered to customers?

J_B.

sprinter11

Right o i get the gist,overall people are saying that it's my fault that i rely on an overdraft because of poor pay(and don't say get another job that pays more cus there arnt any simple as) i still maintain that this is blatant profiteering by the bank in question,for reasons we are all well aware off,i will most definatly vote with my feet and move my buisiness elsewhere,and that also includes not only me but my wife and the childrens accounts also,so by being greedy on the part of LTSB they will loose my custom come December,but what really galls me is the fact that i myself partially funded there audacity..i rest my case..over to you Lokoko.

jonesMUFCforever

sprinter11 wrote: »

Right o i get the gist,overall people are saying that it's my fault that i rely on an overdraft because of poor pay(and don't say get another job that pays more cus there arnt any simple as) i still maintain that this is blatant profiteering by the bank in question,for reasons we are all well aware off,i will most definatly vote with my feet and move my buisiness elsewhere,and that also includes not only me but my wife and the childrens accounts also,so by being greedy on the part of LTSB they will loose my custom come December,but what really galls me is the fact that i myself partially funded there audacity..i rest my case..over to you Lokoko.

No what we are saying is its your fault because you don't live within your means - poor pay or not.
If you want to borrow THEIR money then you have to pay - the earlier you budget better the less money they will make from you (and more of your money you will be able to keep for yourself).

dizziblonde

sprinter11 wrote: »

Right o i get the gist,overall people are saying that it's my fault that i rely on an overdraft because of poor pay(and don't say get another job that pays more cus there arnt any simple as) i still maintain that this is blatant profiteering by the bank in question,for reasons we are all well aware off,i will most definatly vote with my feet and move my buisiness elsewhere,and that also includes not only me but my wife and the childrens accounts also,so by being greedy on the part of LTSB they will loose my custom come December,but what really galls me is the fact that i myself partially funded there audacity..i rest my case..over to you Lokoko.

Ignore the crowd on here who love to bash anyone who admits to going into their overdraft. They do the same every single time another bank cranks the overdraft pain up and just enjoy taking pot shots at people.

Unfortunately, crappy though it is (and like I say - I was going to get hit very hard by the Halifax changes on this), you need to get out of the overdraft asap in order to be able to assess your options and if you so choose vote with your feet and move. I drop into mine on occasion - stuff happens and finances go wobbly for the odd month (my car decided to cost me £200 in repairs this week on a month that I knew financially was going to be tight anyway... the sort of thing overdrafts are there for) - I'm human.

The debt-free board's probably the best place to be to work out what you can cut to start to inch your way out of it - but yes, it's cruddy and they're all trying to do it -to hammer one group of people so they can offer perks for others. Welcome to modern life I guess.

vaporate

JAYk wrote: »

What do you expect when you're wanting to use money that is not yours...?

Banks can though right.

Plus banks pay crap interest rates.

If my bank introduces a fee for all accounts then I will switch.

If need be have no bank account if all do it.

In my view it is the banks fault.

How about not making overdraft available. Problem solved. No? because they make a mint...

vaporate

jonesMUFCforever wrote: »

No what we are saying is its your fault because you don't live within your means - poor pay or not.
If you want to borrow THEIR money then you have to pay - the earlier you budget better the less money they will make from you (and more of your money you will be able to keep for yourself).

That should cut both ways with savers like me...

Does it?...HA!

LongTermLurker

dizziblonde wrote: »

Ignore the crowd on here who love to bash anyone who admits to going into their overdraft. They do the same every single time another bank cranks the overdraft pain up and just enjoy taking pot shots at people.

You're doing a lot of helpful people a great injustice. There's an awful lot of help bandied round on this and other boards, and I disagree that people like to take potshots at people who go into their overdraft. However, people don't mince words when it comes to criticising people for living in their overdraft and then complaining because they are being charged a fee. Whenever I use my overdraft, I do so in the knowledge that a) I will have to pay it back and b) I will have to pay a fee for the privilege.

Unfortunately, crappy though it is (and like I say - I was going to get hit very hard by the Halifax changes on this), you need to get out of the overdraft asap in order to be able to assess your options and if you so choose vote with your feet and move.

Good advice.

I drop into mine on occasion - stuff happens and finances go wobbly for the odd month (my car decided to cost me £200 in repairs this week on a month that I knew financially was going to be tight anyway... the sort of thing overdrafts are there for) - I'm human.

Exactly, that's what it's there for - emergency borrowing; that's not the same as staying consistently within the overdraft. I don't think anyone on this board is criticising anyone for using their overdraft; they're criticising people who think they can use their overdraft for free.

I walked away from the Halifax when the clowns started with the idiotic overdraft charges... and it's why I jumped at the chance when we got a small bit of spare cash to clear out the small overdraft I was in and close my Halifax account down - I don't agree with what they're doing ... so I voted with my feet.

Ignoring people who (like me) get a benefit out of the new charging structure, no-one can argue that they haven't vastly simplified things. Did you prefer to be charged £25 - £30 plus interest each time you went into your overdraft? Let's see, you can now have 5 days' interest free usage per month and if you don't use it, there's an incentive. So using the old £30 charge and ignoring the additional interest that was charged on top, compared with the new structure, you can now go up to £2500 overdrawn each month for about £25:

30 days @ £1/day = - £30
1000 deposit = + £ 5
Amount charged = £25 (no additional interest to pay)

Even if the old charge was £25, you're no worse off. The only ones who are worse off are those that are either borrowing large amounts of money (over £2500 - not what an overdraft is suited for) and those who take (without authority) more than their agreed overdraft.

If you don't like it, then voting with your feet is the right thing to do, but I think there's a lot of people who don't realise how much better the new system is, even for people who regularly use their overdraft.