Pay off student overdraft?

cjabbir

I have £750 in student over draft which is interest free until 2016. I'd like to pay this off before then. i have managed to save £1000 in ISA since leaving uni but i feel like this is my energency fund. Do I pay off my overdraft with my savings?

I'd really appreciate any advice.

TartanSaver

No. I keep my student account permanently £1499 overdrawn, and put the money in an interest bearing current account. Why reject free money? £750 could be earning you £37.50 a year (before tax) in a TSB Plus account. The important thing is not to SPEND the money - so that you can pay it off right before you it starts to cost you anything.

You'd be far better off with your £1000 in a current account than an ISA. Even after basic tax 5% gross is 4% net. There are two accounts (TSB and Nationwide) offering this. The best ISAs are what, 1.65%?

The only exception I can think of would be if you were considering a mortgage in the immediate future - showing £750 overdrawn might look bad to a lender (who can't see the interest rate you're paying - only the debt.) Since you only have £1k in savings, it's fair to say you won't be buying a house any time soon, so you're best making the free money work for you.