Using my overdraft to invest.

KisstheSon

Hi there

I plan to open an Alliance & leicester direct account that has 0% Overdraft for a year.

I then plan to take the overdraft money to save in a high interest saving account. Is this a good idea? Is it worth it? Is there anything I should watch out for?

Can anyone help?

stphnstevey

I've done this. But I consider myself good with money. If your not, it can lead to more trouble than it's worth.

dunstonh

invest or save?

If investing its known as gearing where you borrow to invest. If the investment does well you can make a lot of money. If it goes down, you can lose a lot more money.

If saving, you are only comparing it against interest rates. Make sure there are no fees on the product as 0% doesnt mean charges free.

RocketMan

Hello

The problem with the A&L account is that you will have to pay in £500 per month, or face a £5 charge. Plus when setting up the account the over draft you will receive is based on the amount you say that you will pay in.

When I opened mine I said I would pay in £750 to £1000 a month, and got £500. Then when I only paid in £500 for a few months it was reduced to £250. Make sure you have the means to pay of the overdraft just in case for some reason the bank asks for it back.

I would recommend that you open their Premier Current Account, get the over draft (thus not needing the 6.1%). Then pay in the £500, put £250 into the regular saver every moth (paying 12%), then put the other £250 back into your other savings account. Although not sure if only paying in £500 will cause a reduction in over draft, has any one else notice this?

I have a excel spreadsheet I have been working on for regular savers and interest calcs, it can provide an idea into the returns, here is the link.

http://cepheid.81.googlepages.com/home

Hope this Helps, and good luck saving!!

gingercordial

Basically this is the same idea as stoozing on credit cards, so you might want to visit the stoozing board here, or www.stoozing.com, for further advice.

It will be a bit tricky to run as you'll have to pay in £500/month, and then presumably withdraw it and invest it again. If you can afford to make that £500 payment yourself (out of wages or whatever) then fine, but if you have to take it from your savings each month then put it back, you're going to lose a lot of interest on the days when you're transferring money around.

So yes, I think it would work, provided you're organised enough to keep the money moving around (perhaps set up some standing orders to do so) and don't lose too many days' interest.

dunstonh

It will be a bit tricky to run as you'll have to pay in £500/month, and then presumably withdraw it and invest it again.

That option then involves risk that the investment could go down as well as up. If you accept that risk, then its fine but for just one year, investing really isnt an option. Borrowing and the 1 year term just are way off the risk scale. This is why you should stick to savings and not invest.

gingercordial

dunstonh wrote:

That option then involves risk that the investment could go down as well as up. If you accept that risk, then its fine but for just one year, investing really isnt an option. Borrowing and the 1 year term just are way off the risk scale. This is why you should stick to savings and not invest.

Oops, sorry, I did mean "save" rather than "invest". I'm so risk-averse that I would never dream of stoozing with anything other than an easy-access savings account, and I was imprecise with my terminology.

I meant they would have to transfer it back from A&L to their savings account.