Would you stay with a bank that didn’t give you an overdraft ?.

TheBanker

takman wrote: »

But that all came down to what cards you had with you at work. I keep a couple of debit cards in my wallet and also my credit cards. So in that situation I would have simply been able to pay using my credit card.

At the time, I carried one debit card (main bank) and one credit card (cashback card for UK spending). At home in a safe place I kept the other debit cards and my second credit card (overseas spending). I do now carry a second debit card but that's because I've now got the TSB account and use their card for small purchases to generate cashback.

I could have paid for the flights and hotel using my credit card, sure, but there would have been no real benefit would there? I didn't need Section 75 protection and as you pointed out the cost of one vs the other would have saved maybe £1. But given the urgency I was not going to start calculating the most cost effective way to pay. I could probably have saved more by shopping around for the flight and could have certainly saved by travelling the following day, but that wasn't an option due to the circumstances.

What I am saying is I could have borrowed money from a bank using a credit card, but I chose to borrow the same amount using my overdraft. In the end I don't think there's the huge difference you're implying.

By the time I got to the airport I had topped up my current account so the next point is academic, but... would you have withdrawn cash on your credit card? I needed cash for taxis etc and would have paid an extortionate rate using my credit card to withdraw it. As I say, I was back in credit by this point so the debit card transaction didn't use my overdraft, but it illustrates an example where an overdraft is a better way to borrow.

Finally - while my poor old dad was unconscious in hospital abroad, he was (obviously) not able to log into his bank account to do transfers. He used to receive his pension into his own account, then manually transfer some to the joint "bills" account. Nobody could do this transfer for him so the bills account went overdrawn. Luckily it had a small overdraft so the gas bill didn't bounce. I would have topped this account up for mum but she didn't tell me as she didn't want to worry me any more while I was abroad. So she rang the bank and increased the overdraft instead. She couldn't have (easily) sorted that problem out with a credit card.

I guess the last example does point towards poor financial management - but the system they used was not designed to cope with this situation. Ironically dad wanted to make his main account joint as he was getting older. He had an appointment at the bank to do this two days after he was supposed to return from holiday.

TheBanker

I'm taking this off at a tangent here but I don't completely disagree with takman. I do firmly believe the purpose of an overdraft is a buffer for emergencies, not something that should normally be used for planned spending.

For example, at least when I was at uni and when I worked in a university branch, the overdraft was a key selling point of the student accounts and many students would choose their bank based on who offered the largest overdraft. They then used the overdraft as additional money to spend alongside their student loan and any other income they received. So the second years needed bigger overdrafts than the first years and so on.

This is not the correct use of an overdraft and I would prefer it if the product was not offered by banks in this way.

I have a friend who is not good with money and he treats his overdraft as part of his balance. So if his balance is £100 and there are 2 weeks to payday, he doesn't cut back because his available balance shows as £600. He is in a trap now where after 2 weeks he is overdrawn until payday but he doesn't see it as a trap and is quite happy with his situation.

takman

TheBanker wrote: »

At the time, I carried one debit card (main bank) and one credit card (cashback card for UK spending). At home in a safe place I kept the other debit cards and my second credit card (overseas spending). I do now carry a second debit card but that's because I've now got the TSB account and use their card for small purchases to generate cashback.

I could have paid for the flights and hotel using my credit card, sure, but there would have been no real benefit would there? I didn't need Section 75 protection and as you pointed out the cost of one vs the other would have saved maybe £1. But given the urgency I was not going to start calculating the most cost effective way to pay. I could probably have saved more by shopping around for the flight and could have certainly saved by travelling the following day, but that wasn't an option due to the circumstances.

What I am saying is I could have borrowed money from a bank using a credit card, but I chose to borrow the same amount using my overdraft. In the end I don't think there's the huge difference you're implying.

By the time I got to the airport I had topped up my current account so the next point is academic, but... would you have withdrawn cash on your credit card? I needed cash for taxis etc and would have paid an extortionate rate using my credit card to withdraw it. As I say, I was back in credit by this point so the debit card transaction didn't use my overdraft, but it illustrates an example where an overdraft is a better way to borrow.

Finally - while my poor old dad was unconscious in hospital abroad, he was (obviously) not able to log into his bank account to do transfers. He used to receive his pension into his own account, then manually transfer some to the joint "bills" account. Nobody could do this transfer for him so the bills account went overdrawn. Luckily it had a small overdraft so the gas bill didn't bounce. I would have topped this account up for mum but she didn't tell me as she didn't want to worry me any more while I was abroad. So she rang the bank and increased the overdraft instead. She couldn't have (easily) sorted that problem out with a credit card.

I guess the last example does point towards poor financial management - but the system they used was not designed to cope with this situation. Ironically dad wanted to make his main account joint as he was getting older. He had an appointment at the bank to do this two days after he was supposed to return from holiday.

Like I said I have the Halifax Clarity credit card which has no fees for use abroad and no fees for withdrawing cash in any country. So it's a good all round emergency card which could be used to withdraw cash in this country if needed, but I can't imagine any situation where I would need to do that.

You may not have needed section 75 protection in your scenario but it's obviously better to use a credit card just in case you do need it. I also carry round my TSB debit card with me and as it currently offers 5% interest on £2000 then it will always have that amount in it ready for me to spend if needed.

So considering that when you apply for any new credit they will take into account any credit you have currently. I wouldn't want to have an overdraft just in case they see that amount available and offer me a lower limit than they would have if I didn't have the overdraft. For people who are seen as a higher risk the credit available for an overdraft may be the difference between being accepted for a 0% credit card or not.

TheBanker

takman wrote: »

So considering that when you apply for any new credit they will take into account any credit you have currently. I wouldn't want to have an overdraft just in case they see that amount available and offer me a lower limit than they would have if I didn't have the overdraft. For people who are seen as a higher risk the credit available for an overdraft may be the difference between being accepted for a 0% credit card or not.

That is fair enough. I should add that my overdraft is £500 (although out of curiosity I looked at the "offers" page in internet banking and it said I could apply for up to £4,500 :eek:

I've never had any problems getting credit cards but I guess if my overdraft was in the £1000s I would do.