What are our best options? Advice please!

innovate

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.

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.

I agree in principle with pqrdef, this would work well for an experienced banking customer. But in the case in hand, and in principle, I would advise a graduate just as I said before - i.e. reduce your overdraft limit to the interest-free amount (£500 in this case) and try to not spend a penny off it.

It's a bit like financial potty-training for grown-ups - because sooner or later, and long-term, you want to keep your pants clean, without anyone else's help! I.e. live outside your overdraft for good, even if you still have an overdraft limit. I.e. keep your potty in case you need to p*ss (or worse) in it, but don't use it every time.

Personally, I would create (and have created) my own "overdraft", by aiming to never go below £x (200, 300, 500, 1000....whatever you fancy) on my current account with regular bills and spending. I would use a current account that pays interest (Santander 123, Lloyds, BoS), in order to earn interest if I keep above the limit I set myself. In my case, the Santander 123 pays me at least £200 a year in cashback and interest (though I appreciate, this account may not be lucrative for x_missymoo_x since there doesn't seem to be much opportunity for cashback for her and her hubby presently).

If you *must* have an overdraft that you can use regularly, try to get a free one - though once you are no longer a student/graduate, your choices seem to be limited to the £250 at First Direct. If you keep a clean record on your CRA files, current account providers will be quite happy to offer you overdrafts, whether you ask for them or not. But none of them will be free for more than max a tenner or so. Still useful to have them even if you don't normally use them, just in case of some major panic.

innovate

Mirno wrote: »

it's better to have the money in the savings account than in the current account, even if it is only for two weeks.

No it is not. Sorry.

If you pay 17.8% to borrow money and get diddlysquat % to save money (like everyone does nowadays), it is sheer lunacy, because it costs you lots of money, to maintain an overdraft balance when at the same time you have money in a savings account.

Note, I am not saying you should give up your overdraft limit - that's still useful to have, just in case.

Banks will be perfectly happy to let you keep your overdraft facility and limit indefinitely if you don't dip into it. If, however, you constantly live in your overdraft, they may recall the whole thing with very little notice. Their T&Cs allow them to do it, and we have seen plenty of reports on MSE of when they did do it.

Robin_TBW

You need to learn to control yourself if you ever want to move out. The "if it's there I'm tempted to spend it" comment is what so many people's problem is. Stop looking at money and seeing it as an invitation to spend it. You'll never get where you want to in that mindframe and until you can stop that you're going to keep having a problem.

Also, don't be scared to have accounts with separate banks. It's still very easy to transfer into another account with another bank. You're giving away a bit of free money by picking the same bank over one that might be paying a better rate. The phrase "don't put all your eggs in one basket" can be a very true one with regard to savings and investments.

innovate

x_missymoo_x, you have done extremely well over the last couple of days - you moved your savings out of that doldrums account, and I sense you have had a lightbulb moment or two, too. You are on a good road, congratulations!

Good decision not to fix your ISA for now - - come April and "ISA season", you may be able to get a better rate. Or so we all hope.

Good decision also to keep your First Reserve open - as you say, you might need it.

You can easily go a lot further ---- your need/desire to be able to transfer money instantly, or literally instantly, can easily be met by almost any bank and Building Society these days. Banks/BSs must by law offer "Faster Payment" - which means that any money transfer must be credited to the recipient by the end of the next working day. In practice, money does arrive literally instantly in the target account in most cases these days.

To manage your accounts in more than one place, you can use things like accountunity, which can show you all your accounts in one place. Add a spreadsheet (or pen and paper), and you will never depend on a single bank again!

Mirno

innovate wrote: »

No it is not. Sorry.

If you pay 17.8% to borrow money and get diddlysquat % to save money (like everyone does nowadays), it is sheer lunacy, because it costs you lots of money, to maintain an overdraft balance when at the same time you have money in a savings account.

Yes it is. Sorry.

I never suggested using the interest incurring overdraft. I suggest that if you intend to spend £500 a month (evenly split over the entire time) that you could put £250 in the current account and £250 in the savings account. Then after 2 weeks move the £250 from the savings account back to the current account. Thus earning interest on £250 for two weeks, not tempting yourself with it being available to spend, and not going anywhere near the overdraft.

In fact if you read the last paragraph I specifically state that it's better to stay on the safer side of the overdraft than to go over it.

Thanks,

Mirno.

innovate

Sorry if there was a misunderstanding, Mirno, I didn't realise when you said

Mirno wrote: »

....- it's better to have the money in the savings account than in the current account, even if it is only for two weeks,,,.

that you were talking only about the interest-free portion of the overdraft.

Like in my response to pdrdef's post, whilst in theory I agree with the exploitation of the interest-free overdraft, I still maintain that x_missymoo_x would do better is she weaned herself, and her husband, off the overdraft to start with.

Once they both are completely in control of their finances, they can start exploiting the likes of free overdrafts and 0% credit card balance transfers, and other smart moves consumers can make.

x_missymoo_x

innovate wrote: »

x_missymoo_x, you have done extremely well over the last couple of days - you moved your savings out of that doldrums account, and I sense you have had a lightbulb moment or two, too. You are on a good road, congratulations!

Good decision not to fix your ISA for now - - come April and "ISA season", you may be able to get a better rate. Or so we all hope.

Good decision also to keep your First Reserve open - as you say, you might need it.

You can easily go a lot further ---- your need/desire to be able to transfer money instantly, or literally instantly, can easily be met by almost any bank and Building Society these days. Banks/BSs must by law offer "Faster Payment" - which means that any money transfer must be credited to the recipient by the end of the next working day. In practice, money does arrive literally instantly in the target account in most cases these days.

To manage your accounts in more than one place, you can use things like accountunity, which can show you all your accounts in one place. Add a spreadsheet (or pen and paper), and you will never depend on a single bank again!

Thank you very much innovate for all your help and advice, in addition to all the people who have replied. Yes, I have certainly had a few lightbulb moments, in addition to many moments of thinking 'why on Earth did I not do this sooner?'

Looking back at my orginal post, my question was what to do with my money and to get me out of my overdraft. I've now got a plan to get me out of the overdraft and I've taken steps to move my savings somewhere better.I think for the short term, and indeed as a start to 2013 (cliche I know!) but I've taken steps along the right track.

Hopefully once I am in a better financial position I will be a little more savvy about banking and be able to maximise my money even more.

Thanks again everyone, I'm really grateful :j Hopefully I'll be able to come back here and let you know how my money has grown!

innovate

yes, don't go away, x_missymoo_x, MSE is a great place for great advice, information exchange, and discussion. Keep ploughing away with your savings plans, and keep asking for suggestions. There will always be plenty of folks who have "been there" before you, and who are more than happy to share their experiences. And there is a good chance that trolls will be responding, but they can and will be easily be identified.

You have a fantastic starting base for your finances, make the best of it. Keep the focus on moving out of your parental home - it is critically important you and your husband become self-sufficient. With a bit of prudent management of your finances, you should be able to achieve your medium-term goals without any troubles

See you around - and see you giving practical advice to other folks before long!