What are our best options? Advice please!

innovate

Sounds like you can get out of the overdrawn situation during January, which would be brilliant. Keep the overdraft arrangement for any real panics but always plan not to use it - i.e. learn to live entirely within your means whilst you still have the interest-free safety net.

If your savings account balance doesn't go up this month, it just means you haven't taken on more debt! Not putting anything into your savings this month means you are not borrowing money at 17.81% APR, for which you only get paid diddlysquat % AER (say 0.5%). Example:

• Borrowing £100 from your overdraft for a year will cost you £117.81.
• Saving £100 in a 0.5% savings account will yield £100.01 after a year (after the 20% tax that gets automatically deducted from normal savings accounts)
• so you end up owing the bank £17.80. They'd love a customer like this, obviously :-)

The other thing you should do as a matter of urgency is find a better place for your savings. You can use the MSE Reg Savings calculator to see how much you can make in a year from a First Direct Regular Saver. At a guess, it will be almost 100% more than you get from your First Reserve.

Or there's just the normal savings calculator: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#calc

Robin_TBW

What are you spending so much money on? After your monthly outgoings you have £1,200 left and that's VERY similar to myself. I manage to save £700 per month. When you say "live frugally" does that mean you're not able to buy expensive drinks and clothes or something? You need to look at budgeting yourself a bit more before anything else or you're going to be stuck with the parents for a lot longer than you'd like. Does that £4 coffee from Starbucks matter more per day (£80per month) than that little bit more to your own home and life?

If you're paying any interest on your overdraft do NOT use it. You're paying quite a bit extra then on everything you're using it for. If it's 17.5% then that £4 coffee is actually then costing you £4.70 and the interest you're getting on your First Reserve account is probably 0.1% so you're getting a nice bonus of 4p per month on £4000 in there. The sums just don't add up in any positive way.

Both of you open up an ISA as they HAVE to be in individual names - not joint. Close the First Reserve unless you use it to pay joint bills from or something and only use it for that purpose.

But even with opening an ISA, the interest rate you will get on them will still not be even slightly comparable to what you'll owe the bank if you continue to stay in the overdraft. Get out of that and stay out of it.

x_missymoo_x

innovate wrote: »

Sounds like you can get out of the overdrawn situation during January, which would be brilliant. Keep the overdraft arrangement for any real panics but always plan not to use it - i.e. learn to live entirely within your means whilst you still have the interest-free safety net.

If your savings account balance doesn't go up this month, it just means you haven't taken on more debt! Not putting anything into your savings this month means you are not borrowing money at 17.81% APR, for which you only get paid diddlysquat % AER (say 0.5%). Example:

• Borrowing £100 from your overdraft for a year will cost you £117.81.
• Saving £100 in a 0.5% savings account will yield £100.01 after a year (after the 20% tax that gets automatically deducted from normal savings accounts)
• so you end up owing the bank £17.80. They'd love a customer like this, obviously :-)

I think my mindset has been to watch the savings increase and almost factor a chunk of money out of my wages to go into the savings, however in the duration I've lost sight of the fact that actually I'm losing out by using my overdraft to do it! And rather foolishly, too.

This thread has definitely gave me a kick up the rear end to get these finances in order - I always thought it would take me ages to get out my overdraft, but again that's because I've been so concerned with putting money in the savings. Having someone point out that actually if you don't save anything this month you could actually get out of your overdraft is what I clearly needed!!

So my plan for January is sorted... now to find an account for the savings we do have! Thank you for your help

x_missymoo_x

Robin_TBW wrote: »

What are you spending so much money on? After your monthly outgoings you have £1,200 left and that's VERY similar to myself. I manage to save £700 per month. When you say "live frugally" does that mean you're not able to buy expensive drinks and clothes or something? You need to look at budgeting yourself a bit more before anything else or you're going to be stuck with the parents for a lot longer than you'd like. Does that £4 coffee from Starbucks matter more per day (£80per month) than that little bit more to your own home and life?

Until August it was our wedding! October was a busy month with lots of family birthdays, whilst November and December was a massive overspend on Christmas.

We've gone through all of our bank statements since the weddings and have picked out things that we wouldn't normally spend on each month, e.g. Christmas, and then other things we *shouldn't* spend on, e.g. nipping out to Tesco at lunch time or trips to the cinema and Nandos

atush

Start a spendiong diary. Write down every thing you spend (even if 1 quid on parking).

Then review and reduce.

also look at your phones and other contracts/DDs. See what you can save there by switching (or stopping subscriptions etc).

pqrdef

x_missymoo_x wrote: »

If I reduce my overdraft now to £500

Don't reduce your overdraft limit!

You don't need to. £500 interest-free means that when you're in the red, you don't pay interest on the first £500 of redness, and if you go past that, you only pay interest on the excess. Irrespective of what your limit is.

It's not costing you anything to have a higher limit than you need.

Exploit the £500, it's free money. Try not to go more than £500 into the red, but if you go a bit over for a few days, it's no big deal (5p a night for each £100 over the free £500). It'll be a much bigger deal if you've reduced your limit and then you go over it.

5p a night is about 4p more expensive than borrowing £100 from your savings, but that only shows that savings interest isn't going to make you rich. Put the effort into economising and tarting the freebies.

x_missymoo_x

I've just applied for the Natwest e-ISA... possibly not everyone's first option (if anyone's, judging by the boards!!), but it seems the easy option to me in that I can use the Online Banking between my main account and also the First Reserve if I need it - I'll keep it open as the card does come in handy, as the husband discovered when he lost his! With the amount we have got at the moment, our rate is 2.00%... definitely not the best but as I look at it, it's more than what we were getting in the First Reserve! I'm one of these simpletons that likes to see everything in the same place, a bank manager's ideal customer I suppose Decided against fixed term to keep our options open really, plus there are no penalties for withdrawals if we needed to.

Well, that's the first step done

x_missymoo_x

pqrdef wrote: »

Don't reduce your overdraft limit!

You don't need to. £500 interest-free means that when you're in the red, you don't pay interest on the first £500 of redness, and if you go past that, you only pay interest on the excess. Irrespective of what your limit is.

It's not costing you anything to have a higher limit than you need.

I had considered this, and one of the things I do know (although it seems there aren't many!) is that I only get charged on amounts I am over the limit... my main issue would be that if I kept the full amount I would become tempted to use it and then not get out of it again, whereas if it was reduced to the interest-free limit I physically couldn't! Although having the extra would be a safety net, on the other hand the savings are always there too in an emergency, I just need to exert a greater self-control. :rotfl:

I just want to be in a situation where the money in my account is mine - hopefully this will be achieved by next pay day!

pqrdef

x_missymoo_x wrote: »

whereas if it was reduced to the interest-free limit I physically couldn't

You could. They can let you go over, and then hit you with charges, and hit your credit rating. Banks like to do this with low-risk customers.

Mirno

Remember you can always move money back from your savings account too - it's better to have the money in the savings account than in the current account, even if it is only for two weeks.
Personally I review my current account 2 or 3 weeks into the month (I changed jobs so all my direct debits are no longer in line with payday ). I move money back from my savings account to make sure I'm not going to go into my overdraft - you, having a 0% overdraft should make sure you don't go outside that £500...

Having said all that - £500 @ 2% interest is only worth 82.6p per month, so I wouldn't worry about the limit too much - it's considerably better to be safe than sorry given the benefit of using the 0% overdraft vs the cost of going beyond it!

Mirno