Come to Monzo HQ to talk about Overdrafts 😄


(Tommy Long) #21

A monthly cap of £12 is still often more than a 19.9% overdraft with a £6 fee. At 1p/£10/day over the course of a year Monzo would start out cheapest because of the £6/month on the regular overdraft (up until £280), then a regular overdraft would be cheaper up until around £700 when Monzo becomes cheaper again because of the monthly cap.

If you want genuine simplicity you don’t need a monthly cap, you just need to set a rate that is right. Having your credit cost you more for the first fortnight of the month and then become free for the rest isn’t simple, a low, flat, consistent rate (expressed as xp/£y/day is the simplest approach)


((☞゚ヮ゚)☞ ☜(゚ヮ゚☜)) #22

Some of us are shit with their money and don’t plan ahead properly.
Getting better though,


#23

Some of us would much rather owe the bank money at 0% than lend them it at 0%


(Fin) #24

Disagree with most views posted on this one, and think Monzo are onto a good thing. Personally in my view, I think this is because there are typically two different types of overdraft borrowing; short term borrowing (i.e. we project that you will run out of money within 5-10 days of your next payday, would you like a £XXX short term overdraft facility to tide you over?) and longer term borrowing (you have moved your whole current account to Monzo, direct debits, salary etc. and treat it like your HSBC/Barclays/Lloyd’s etc. account. After demonstrating yourself to be a good credit risk, you are granted a ‘permanent’ overdraft of £Xk – similar to the overdrafts you currently have).

I think the 1p per £10 lends itself really well to the former, it might work out as higher %APR than current banks depending on the situation, but it’s super convenient (pre-emptive app notifications rather than ringing up a bank for half an hour to secure a £XXX overdraft that will likely only be used for a few days) and I think it’s warranted a premium be paid for that. 50p per day lends itself more to the latter, and those that use overdrafts constantly may find that is significantly cheaper than their current overdraft arrangements. I think what people are querying in terms of whether this would be fair in practice will largely depend on which type (short/longer team) overdraft you are granted.

I think Monzo’s approach is sound. Super excited about the current accounts, and can be available for a chat/Skype to discuss further if helpful 

Interest free buffer is a nice touch.


#25

Does this imply you will not offer overdrafts over around £500? I am assuming that because £500 overdrawn all month would be around £15 at 1p/£10/day so anything lent above that would be at zero interest, so why would you lend more than £500 to anyone for more risk but no return?

I would still keep my legacy bank as my #1 account if you would only offer pocket money overdrafts at a high APR. Personally I want at least 3-5k overdraft available and i dont need any interest caps to save me from myself or debt spirals, just an agreed rate that does not have any caps or clauses attached. I think @tommy5dollar 's suggestion of 1p/£20/day would suit both overdraft ‘dippers’ and ‘stayers’ and still put you in at the average rate tom was talking about.


(Tommy Long) #26

I don’t disagree that on larger amounts 50p works out pretty cheap but that to me is the entire issue: 1. those with small overdrafts end up paying through the nose to subsidise those borrowing more, 2. where is the incentive to start paying down your overdraft or to not max it out if it costs the same regardless?

At the end of the day every £1 loaned has a cost associated with it and people should have that fairly passed on to them with a fixed profit per £1 on top for Monzo for providing the service.

Getting an overdraft from an existing bank is hardly difficult. They tend to pre-authorise you for them when you set the account up and you can usually instantly change the level through your online banking.


(Fin) #27

I think “paying through the nose” is a bit of a stretch. This isn’t going to be extortionate money is it, in comparison, it’s likely to be a premium, but for a short term facility set up in a couple of clicks – not sure many banks can do that, and I think customers will happily pay a premium for the ease.

I also don’t think it’s a case of those taking shorter term borrowing subsidising longer term rates (assuming that is in fact what Monzo are planning) – the two are very different risk profiles and it’s to be expected that Monzo should price them as such. A very short term lend (say, 5 days) of £100 will probably be much easier to come by than someone looking for a permanent £5k overdraft – again, you’re paying for the convenience.


(Tommy Long) #28

I think paying £12-15/month for borrowing £1 (over whatever leeway is allowed) is certainly “paying through the nose”.

I’m not sure why you’re talking about short-term versus long-term… my point is purely about the amount. You’re giving reasons why the length of the debt might change the risk profile and therefore the cost but Monzo are committed to charging by the day and completely disregarding the length of the debt.

The question here is whether Monzo should charge the same overdraft fee for £1 as they do for £5000 or whether it should be based on the amount lent. I’m arguing that the former is bad for a number of reasons.


(Gareth) #29

To compare to the old banks, I looked at 7 of them (details here) and found this:

  • Banks using a percentage charge between 15.9% - 19.9%
  • Banks using flat-fee use a scale to increase rates after £1k - £2k
  • Charging between 75p - £3 per day
  • All use £1k increments after the first increase
  • The fee-free buffer is between £0 - £250
  • 2 banks had a £6 monthly ‘usage’ fee
  • The end of the day ranged from 3:30pm - 6:30pm

50p per day is lower than any current flat-fee offer :smile:

1p per £10 is the equivalent of the £3 per day @ £3,000
But that also means £1.90 @ £1,900
So it’s better in some circumstances and worse in others; but the cap is a nice bonus

I’m of the mindset that if I need to use an APR to figure out the best value, it shouldn’t be spent with an overdraft.


#30

Seens very confusing to me. I don’t want an overdraft thank you, managed 15 years without so can’t see why I’d want one now…

Heard such bad things, once you’re in it’s hard to get out.


(Andy Little) #31

My understanding is that, like any other bank, you will simply be able to not use it. To be honest I have no intention of using an overdraft facility, short term debt (which I very rarely need) goes on credit cards where I get section 75 protection.


(Simon Porter) #32

Currently in that situation with my existing bank. I think the switch over to Monzo will be a good time to do away with the overdraft and pay it all down.


(Bob) #33

I’ve had an authorised overdraft of £2000 with First Direct for about 20 years. I very rarely go into it, and even then it’s always less than £100, paid off from my FD savings account as soon as I’m notified by text msg. It helps to improve my credit score, getting me a great deal on my second mortgage back in 2004. It costs me nothing while I remain in credit and very little on the few occasions I’ve gone into it, so for me it’s just a useful tool to save money on large loans.


(Justin Hunt) #34

So Guys and Gals,

Whilst all the Monzo team are focusing on getting the Current Account rolled out.
Here’s the question.
Just how much would you be prepared to pay for your Monzo Overdraft or other services for that matter?
Is their an overdraft pricing model that you’d prefer to see?


(Alex Sherwood) #35

Hey Justin, I’ve moved your post here, as the team’s asked for some feedback on the overdraft fees & outlined a few options that’re being considered. It would be great to hear your thoughts on how you’d like the pricing to work :slight_smile:


(Justin Hunt) #36

If I had known that there was already a thread, I wouldn’t have bothered putting the post up.
I’ve been interested to know what the pricing structure is likely to look like, and has been noticeable by its absence on the forum.

I appreciate its not all going to be free forever, but will the charging structure look attractive enough for a short term cashflow bridge until the next payday :wink:


(Alex Sherwood) #37

Just to be clear, the plan so far is that Monzo won’t charge fees for it’s standard services.

The only* things that you will pay fees for are the overdrafts & possibly, expedited delivery for the debit cards but only if you choose to use those services.

*There is also a potential fee for ‘investigations’ in the T’s & C’s but that’s charged:

to cover costs of investigating suspicious transactions at customer’s request (we may, at our discretion, waive this fee if genuine fraudulent activity)


(Justin Hunt) #38

Having just spent 12 months knocking a £1000 overdraft on the head, I confess im not eager to have to run that up again any time soon.

The pricing model Santandar had me on is £1 a day. So thats £365 a year,
That works out at about 36% i guess, on the 1K debt.
As you can imagine that became even more painful as I reduced the the overdraft balance as I was still paying £1 a day on an overdraft.

If I had been on a percentage interest then of course i’d have been paying next to nothing in fees the final few months of paying it off.

So i’m in the No flat fees and interest only camp.

Justin


(Leon) #39

I am going to take a unpopular view but you know it is what it is.

I don’t think we should pay anything for an overdraft. Why? Simple we won’t be paid (interest) on our credit balances so what is the banks money worth more then anybody else’s money? It’s only fair that if you don’t pay us we don’t pay you.

Remember the banks earn money from playing with/trading with our money on the money markets during the night so I think that’s compensation enough.

In saying that the less evil of the two if pushed, is paying debit interest as long as it’s not anything too crazy noting the above.


( related to Monzo CEO, Investor in Monzo ) #40

Not unpopular - just a different point of view

why would you want an overdraft if “we” have a credit balance :slight_smile:

If you (?) want Monzo to be a facilitator for you (?) to borrow somebody elses money - they are providing a service to enable you (?) to borrow money from me (?) - I am very happy to have Monzo provide a service that is free - to me - and I don’t mind them using my (? ) money to lend it to you (?) to help you (?) out - for a price that enables them to run a business that provides my service - Monzo would like some reward to enable them to keep giving me the service that I want without a charge to me, pay their rent , pay their wages and make a profit ( in other words a business :slight_smile: )

  • nowt in life is free - I am willing to accept them lending you (?) my money for the service they provide to me at no charge with no recompense to myself for using my £103.63 as long as there is no restriction from Monzo on me drawing out my £103.63 when I want it - now if I want to tie up my £103.63 for a fixed time maybe I would expect some kick back in interest