What is this overdraft revamp week… Just got this from the Halifax in the post today!
Monzo propose to charge the same as Nationwide. And there’s a reason why they haven’t given an APR, it’s because as the 50p a day is a charge, not an interest calculation, they don’t have to quote, as I have demonstrated, a confusing and unrealistic percentage rate.
In fact, you have to be pretty financially savvy to work out if you’re better off going with a traditional overdraft or a daily charge. So despite Monzo’s claim they’re making it easier to understand, I actually feel they’re muddying the waters as it’s difficult to compare apples and oranges.
I have made my objections to a daily charge elsewhere in the forum, as I believe it penalises those customers who borrow small amounts, compared to those who borrow a large amount. It also doesn’t discourage borrowing more, as it costs the same to increase an overdraft. Monzo seemed to have appeased the ‘I can’t understand APR’ crowd, rather than charge a fairer interest rate and use the running charge at the top of the transaction feed, as they propose, to make clear how a percentage looks in real life.
These are only moral objections though. Monzo will help keep my account free, subsidised by those willing to pay 50p a day for simplicity rather than work out an interest rate that is in their benefit. So I win, essentially, as I don’t intend to buy an overdraft.
As for Lloyds, I doubt they’ve introduced their charge to be anything other than more profitable. I suspect they can say that 90% (I can’t recall their actual figure) pay less with the new system because they probably earn more on the remaining 10% to make up for the others’ overdraft charges dropping. And as they’re able to obsfucate this amongst all the shrill talk of irrelevant APRs and ‘cheaper for more customers’ all the better for them.
I’m a big Monzo fan, but I just don’t think I can get on board with the rates for the the overdraft facility. I’m looking for a small convinience fee for a very small buffer overdraft for only a few days at the end of the month - if I need it. I just don’t think 50p per day reflects good value for money at small amounts. Shame.
Get a credit card for that?
As soon as you move to a credit card you lose the spend tracking functionality that I love in Monzo. I have a 0% credit card, but I’d still happily pay Monzo for the overdraft facility…just not that much.
I understand and agree. I wonder how far along plans for a Monzo credit card are.
I am currently with Lloyds and am in the process of switching to Monzo. Personally the 50p/day rather than 1p/£7/day is preferable as the bulk of my spending is on (airline points earning) credit cards so on the odd occasion when I use my overdraft it is because the moons have not aligned between salary and credit card payments so it will be a short duration but high value overdraft.
However there are clearly many others that would prefer the opposite so maybe the answer is to offer two overdraft charging methods and when you sign up you choose one?
Good update. Easy to understand and good to know where you stand on charges as % does get confusing for people. I rarely use my overdraft, so for the moment I will stick with First Direct free £250. I think the £20 buffer in a Monzo current account will be enough to stop me from accidentally going overdrawn (most I’ve gone is -£17, although my credit cards don’t look great!). I don’t yet have the current account, still waiting on my turn, but all promising stuff from the preview I think.
It’s objectively easier to compare a load of APRs and simply pick the lowest, and more difficult to compare Monzo’s 50p per day to a load of APRs and work out when it is cheaper and when it is more expensive?
But I get your point, those unable to work out APRs will pay more for their convenience with Monzo, on lower overdraft amounts.
I get that people find it difficult to work out how their charges are accruing in pounds and pence on an APR overdraft, but Monzo will cleverly fix that with their proposed running total of overdraft charges at the top of your feed, updated daily.
Nice to see this ship, but I’m lukewarm on the fixed fee per day model. Seems like a good reason to use the entire overdraft if you do go overdrawn at some point (why not? doesn’t cost anything extra?).
I’m slightly disappointed by the move to “flat fee per day” fees, which the traditional banks are pursuing currently, instead of a percentage-based fee, like every other type of borrowing out there.
Early in the blog post there’s mention of people not really thinking of overdrafts as debt, and maybe it’s because they just see a £2 per day cost (for example) as opposed to reality 50%+ APR, that it really costs. They are unable to directly compare the flat fees with other forms of borrowing costs from credit cards, loans, so it’s not directly comparable.
Essentially, I view the flat fee as a way of disguising the actual APR that the overdraft costs, in a way to generally obscure the horrendous deal they’re getting from the general public.
Don’t worry guys! With the trends, pulse and graphs etc. Soon you won’t even need overdrafts. You’ll be very wise savers…
Joking aside, I rarely go into an overdraft any more but when I used to it used to be stupid things like Tesco pay at pump surprising me a few days later. On that basis, I’d have gone for a fee free of £25. £20 for sending petrol before payday and a fiver just in case…
I’m really happy with Monzo’s overdraft fees Simple and to the point and totally transparent and upfront.
Most overdraft usage by people is usually towards the days before their pay day, so considering its likely to be a few days to a week at most it’s good value.
Just for example on Natwest, if I go even £1 into my Overdraft I get hit by a Monthly Fee of £6 and then interest on top.
What’s worse is its charged a month later, so randomly you get billed for it the following month unexpectedly.
With Monzo, It’s simple, effective and you know exactly how much the fee is going to be upfront.
Overdraft of £1,000 used for 7 days on Monzo. £3.50
Overdraft of £1,000 used for 7 days on Natwest £9.51
I’d also prefer APR over flat fee, I totally agree with @j06’s excellent posts. Monzo kinda had a chance to show us overdraft cost projections regardless how fees are structured. Right now it will show £8 cost because 16 days * 50p, but it could be £8 because “APR magic done totally by Monzo based on current amount borrowed AND projected spending”.
I can see how flat fee is nicer, because unless user tops up, this £8 fee will be shown and always correct.
APR does not allow for similar, static estimation, as fees will change depending on overdraft amount. It could be more educational however, “Overdraft will cost you £8 now(already), but if you borrow £200 more, fee will be rise to £10.” This should give people more reasons to think and put things into perspective.
The banks have flopped between a flat fee and an APR regularly in the 30-odd years I’ve been banking, each time trumpeting the fact they’re ‘helping’ some customers; when they switch to a flat fee it’s ‘simpler’ for those with large fluctuating overdrafts, when they switch back it’s ‘fairer’ for those who only go overdrawn now and again.
When all is said and done, a flat fee with be more cost-effective for those overdrawn by a large amount and an APR will be cheaper for those who only use their overdraft now and again. But a flat fee is more difficult to work out where your tipping point, where it works out cheaper for you, is, compared with other banks quoting an APR.
Edit: As I’m an ‘overdraft just in case’ person I guess I feel sad because Monzo will charge me more, relatively, to borrow when I need to. But, hey, if that’s what they need to charge others to subsidise my Monzo goodness so I don’t have to pay, bring it.
The “1p per £X per day” is basically APR explained in a way people can understand. So lets say Monzo switches to this model, APR (being the fairest) but explained in this format for clarity and simplicity. The issue now is, what do you set as “X”?
Keeping the £20 buffer, and doing the maths to figure out the options, it’s not an easy decision at all. Make X = £7 like Halifax, and then anyone who borrows less than £350ish is now paying a lot less in fees that at the current 50p rate. And as this is Monzo’s main source of income, that’s a massive problem.
Mainly because the majority of the UK public who use an overdraft, are in the sub £500 overdraft, and chances are with all the budgeting tools available, Monzo customers will probably have less of an overdraft and therefor be closer to sub £350. That means the a bulk of Monzo’s income is getting slashed, just to unfairly compete with other banks that have loads of hidden fees and extra sources of income.
Now they may be forgiven I’m sure, for lowering X to £2. This means now sub £100 overdrafts pay less, but plus £100 pay more, so it kind of balances out. The issue now is, borrowing £1000 for a month costs £130+ which is just unrealistic.
I think we just have to hope, that the flat fee rate works. That for those borrowing very small amounts, will only do so for a few days, and won’t mind a few pounds for the service. That those borrowing closer to £200 for a month, won’t mind spending the extra few pounds per month, in exchange for the Monzo budgeting tools etc. That the simplicity of Monzo’s product is enough to persuade people to borrow with Monzo for more than they could elsewhere, in the knowledge that they will benefit in the long term, by have the budgeting tools to eventually get out of debt.
I like the possibility of the £20 overdraft at zero cost.
For me that illustrates the point of an overdraft - for emergencies or where you take your eyes of the ball for a second. Coupled with the notifications on spending and always knowing your balance, I don’t think many people would have much need to go further into an overdraft.
I wish this was around when I was a student / younger / financially ignorant - the way legacy banks throw overdraft availability around, with little notification against the negative spending, can be a recipe for disaster.
I’ve been arguing that from the start. It’s going to lead to a whole raft of poor PR (and a likely policy change) as soon as the wider media figure it out. It also actively encourages people to take on extra debt (as it costs no more)
Its already been stated by @j06 earlier in the thread that the way Monzo are doing it means for a smaller overdraft the repayments push the APR into the hundreds and larger overdrafts are much better competitively. Payday loan companies got tremendous grief for this approach in the Media and Lloyds Banking Group are getting some with their new fees (see my link earlier in the thread but at least their new fees are scaled). It looks like Monzo (however innocent Monzo’s intentions are) instead of discouraging you to use an overdraft, are encouraging you to use a larger overdraft because fees on £1,000 are the same fixed price as £21.