savings vs interest free overdraft

owl_lover

Hi,
Sorry if this is a stupid question but I wanted to know what others would do in my position; I currently have a graduate account with a interest free overdraft limit of £2000, of which I am currently using £1700. A relative pays £50 a month into this account and I know longer take money out of it. I also have around £10,000 in my main current account (better interest rate than savings account)·

So I could either:
1) pay off overdraft, then start rebuilding savings
2) put all extra income and interest I receive into paying off overdraft
3) keep all money in account with high interest rate, and pay off overdraft when it stops being interest free.
Both accounts are with the same bank.
What would you do?
Thanks

TartanSaver

Do number 3 after finding out some things:

Are there monthly fees for having the graduate account? Probably not, but you definitely want to check that it really is "interest free."
Make sure there are no DDs or standing orders on the account (you can see this on your online banking.)
Account for this as a debt in your budgeting - ring fence the money in your other account. This working depends on you having the discipline not to run out and spend it. That you have £10,000 in savings suggests that you do.

Once you are certain there are no payments going to be coming out of the account, max the overdraft by moving money up to the limit to your interest bearing account.
Find out when your overdraft will cease to be free. Set reminders for yourself for a few days before this date (either using MSE tart alert or your gmail calendar or whatever.)
Pay off the overdraft in full a day before the overdraft becomes chargeable.

I would be very interested to know what kind of account you have that's paying high interest on £10,000. You could be getting 5% on about half of the cash with TSB and Nationwide, but I'm not aware of anything bearing that kind of interest for £10k.

owl_lover

Thank you for your advice.
Account is definitely fee free and interest free overdraft is for another 2·5 years so plenty of time.
Account interest is 3% with the 123 account so interest isn't really high but better than their savings accounts.
I will have a look at the accounts you mentioned-thanks.

jondavis30

Nationwide Current account bears 5% interest on Balances up to £2500 as long as you pay in £1000 a month (Round Robin it from your Santander account to Nationwide and back again).

Put £2500 of your £10000 into Nationwide current account to earn more interest.

Lloyds offer 4% interest on their current account on balances £4000 to £5000, as long as you pay in £1500 per month. again, you can round robin payments back and forth to ensure you make up the £1500 per month.

That's a much better interest rate than you're getting at the minute.

Put £4000 in Lloyds, £2500 in Nationwide Current account - 2% better interest with Nationwide, 1% better interest with Lloyds.

Find an ISA that pays more than the Net APR after excercising these options.

I use my Santander 123 Account as the LAST account to put money in because it generally pays the least interest.

Santander is useful for it's cashback options, but not so much for it's interest rate. Spread your money, earn more interest.

This is something I've recently started doing.

HSBC Regular Savings = 4% APR (you can only pay £250 per month maximum though) - use this once you've exhausted all other options.

If you really want to maximise interest, the above is the best way to do so.

owl_lover

Thank you so much for the advice.
I will definitely look into those accounts!

grumbler

jondavis30 wrote: »

If you really want to maximise interest, the above is the best way to do so.

Why is FD Regular Saver missing?

planteria

yes 3. you certainly might aswell retain the Interest Free overdraft for as long as it remains interest free. infact, you could maximise it, and ask your relative to pay into your S123 if you want to.

Archi_Bald

jondavis30 wrote: »

Nationwide Current account bears 5% interest on Balances up to £2500 as long as you pay in £1000 a month

5% only last 12 months, then dives to 1%. TSB Plus also pays 5% AER, though only on up to £2,000, and has no announced expiry for the 5%.

jondavis30 wrote: »

Lloyds offer 4% interest on their current account on balances £4000 to £5000, as long as you pay in £1500 per month.

the monthly minimum deposit only waives the £5 monthly charge. To be eligible for interest, you have to have 2 monthly paying DDs.

jondavis30 wrote: »

HSBC Regular Savings = 4% APR (you can only pay £250 per month maximum though) - use this once you've exhausted all other options.

This can easily pay 6% AER. Same AER as its cousin, the FD Regular Saver, which allows up to £300 a month.

OP, always read the account terms on the provider's website, don't rely on what you read on a forum. You are making a contract with the provider, not a forumite.

jondavis30

'the monthly minimum deposit only waives the £5 monthly charge. To be eligible for interest, you have to have 2 monthly paying DDs'

So use a credit card for petrol as one of the direct debits, collecting the full balance every month and your phone bill for the other.

I have 9 direct debits all coming out of 4 different current accounts, plus you're entitled to a 4% AER regular saver up to £400 per month with Club Lloyds.

Although the 5% interest ends after 12 months with nationwide, so what? Switch it to another provider. open another current account. Close Nationwide Account, stick the £2500 into santander at the end of the 12 months and use the 3% interest with them on balances over £3k by adding another £500.

With so much money, you can afford to spread it out over current accounts. Investments aren't worth it at the minute. My suspicion is that banks want to increase regular deposits and so offer high interest rates on current accounts as intro offers.

Obviously you have to remain Savvy and move money wisely.

And as an end note RE: reading terms and conditions, you're a fool not to.

colsten

jondavis30 wrote: »

And as an end note RE: reading terms and conditions, you're a fool not to.

So true, particularly as some MSE forumites are posting incorrect / incomplete / badly researched information. [Not looking at anyone in particular].

badger09

colsten wrote: »

So true, particularly as some MSE forumites are posting incorrect / incomplete / badly researched information. [Not looking at anyone in particular].

I've logged on, just to :rotfl::rotfl::rotfl: