Overdrafts - what is the point?

YORKSHIRELASS

From my experience:

If you are good at managing your money you shouldnt really need one.

If you are bad at managing your money they are to be avoided at all costs.

We have a £2500 overdraft (didnt ask for it, Barclays just kept increasing it). Back in the days when our finances were a mess we lived in our overdraft. So if we were £2000 overdrawn we had £500 left to spend. Yes, really.

Now we dont use it. We have a small emergency fund and if this wasnt enough for some kind of financial disaster we would sit down and work out the most cost effective way to borrow.

Interestingly Barclays have told us to keep the £2500 overdraft just in case. We were told that we are unlikely to have it withdrawn and would never be given that kind of lending facility now.

jayss

Useful in an emergency when a credit card is no good, eg pay messed up and rent due.

Like others i first had one as a student, student loans barely covered the rent in halls back then, and using an interest free overdraft was the done thing to get by, along with summer earnings.

My current account is in credit these days and I've reduced the overdraft limit a bit but not got rid of it 'just in case'.

Puddylove

ProudDad wrote: »

Was it that obvious?

'Mines' gave it away.

(I'm one too).

P X

poppasmurf_bewdley

Am I the only one now who remembers when overdrafts were the cheapest way to borrow money?

If I remember rightly, You and Yours on Radio 4 used to advise you to use your overdraft when buying a car as it was the cheapest way to do so.

How times change.

Puddylove

I understand the 'overdraft as a buffer' thing, I suppose.

But where your buffer starts at 0 to - 1000 (or your limit), I would always just keep a positive buffer in my current account, or linked online savings.

For emergencies, I would use some of my ridiculous £30k plus credit card limits (yes, I'm going to close some of them soon).

P x

Pixie5740

When I said I was paid late I meant I went 3 months without being paid last year and then all my Christmases came at once in the 4th month. I had standing orders and direct debits I couldn't pay by card. It also happened not long after I had moved so I had both rent and a mortgage to pay as well as 2 sets of council tax and other utilities.

gingerdad

Having switched current accounts a few times but kept the old ones we have around £6k overdraft facility. But very rarely use more than the 250 free on one of them. The other two both charge daily and would get silly.

We are in the process of switching again this time no new overdraft and we will be closing our Santander account as the with the monthly charge going to a £5 after Christmas it'd be costing us money.

Also run one credit card on 0% for purchases and usually clear it each month but for holidays etc it gives me a free lending facility.

Wouldn't want to live in the overdraft.

Puddylove

Pixie5740 wrote: »

When I said I was paid late I meant I went 3 months without being paid last year and then all my Christmases came at once in the 4th month. I had standing orders and direct debits I couldn't pay by card. It also happened not long after I had moved so I had both rent and a mortgage to pay as well as 2 sets of council tax and other utilities.

I'm lucky enough to have a set salary that's paid every month, but I also work a number of contracts for the same employer - it's taken me 4 months to get paid for one so I sympathise.

That's pretty dreadful behaviour from your employer though.
P x

andyfromotley

i have a £250 one with first direct, its completely free.

Before my LBM i used it every month. Since then (and the start of using YNAB) i have never used it.I suppose i count it as part of my emergency fund, but i do think there is a realistic propect that i will never in my life use it again!! whoop.

uncreative

The banks have to keep capital reserves for every overdraft. So if you have £1000 overdraft, the bank has to keep £1000 cash in reserves "just in case" even if you never use it.

I know it might sound harsh but with a lot of people its about telling them what they don't want to hear. I would prefer all overdrafts to be eradicated as a concept, and guess what, if you don't have the money then pretty much its tough luck. It would force people to budget properly, and that isnt condescending or patronising - its a fact that the majority of people in the UK dont know how to budget their income.

There could be a system that takes the average overdraft balance, no idea but lets say £500. And then if someone needs it temporarily, then they can access it for a maximum 30 days to get to the next payday, and there would be a charge for it, and you can only have 3 in a year. That way the banks would offer a much much better "pay day loan" 30 day facility than you can get now, and the banks would greatly reduce the need to retain capital and use it to advance loans to businesses etc..