Agreed.
But… comparing overdrafts that have a daily charge with others that have APR is nigh on impossible and the FCA want a way for customers to easily compare one bank’s charges against another.
APR seems like the only way to go to have a non-regressive charging system.
With all respect, that shows you’re not poor.
The problem is that if you’re poor, and I mean poor - being £20 overdrawn is enough to have to then wait until you’re paid to get out of it. That could be days - 50p a day at that.
You might not consider yourself poor, because you know you can just pop £20 back in and be fine. The truly poor, who are likely to be affected by a daily charge the most, can’t just pay £20 in and end up paying effectively horrendous APR’s for a small amount overdrawn.
I use my Monzo overdraft because it’s easy and convenient. I can work out exactly how much it will cost off the top of my head, then combine this with the displayed running total and due date, it makes it worthwhile for me even though it’s not the cheapest.
Other banks I’ve been with don’t just charge APR but bundle in other fees with it too so it can get confusing and messy. I’ve had my fees snowball too because they don’t tell you when they’re taking them (bank Holidays and weekends impact this too) so that can send you back into your overdraft and then it’s repeated again the next month. Especially if APR and unauthorised overdraft fees are charged separately.
I understand that some people are more savvy and like to save a bit where they can and that’s fine also. Thank goodness we have choice because I don’t believe there ever will be a one size fits all solution here.
You could argue at least a flat fee per day is easy to understand for everyone, whereas a daily APR is just gobbledegook to many
Hi @coffeemadman! Perfectly happy to have the discussion - big fan of your work on here.
You’re right - I’m not currently poor, but consider these scenarios. I’m not exactly sure which penny Monzo start charging on, so I’m going to fatten the fine line by a penny, just to illustrate the point:
£19.99 under - This is completely free, and if not agreed, would cost a fortune at a lot of banks, even if only for minutes.
£20.01 under - This is 50p a day, and if you can find tuppence, it will become free again. If you can find the tuppence the same day, it will never be charged. If you’re wondering where the next meal is coming from, Monzo will lend you the rest of your overdraft for the SAME 50p.
£999 under - This is where it gets awkward, because if you are spent out, and you’re almost at the limit of your overdraft, then you really are worried. On the high street, you will be charged punitively for an overdraft this size, but at Monzo, it will still be the same 50p. To be honest, I’m not sure what happens to bank charges (at any bank) that would take you beyond that, but I’m guessing they get held against you and charged the following month, or they just charge you anyway and kill your card. At least with Monzo, the damage would be a maximum of £15.50 for a month. Try comparing that to the high street. Clearly money isn’t free, but I don’t think Monzo are ripping off the poor as much as their rivals.
Anyway, as you know, this legislation has been on the cards for years, so I’m sure Monzo will have thought of a great response. Now that they have a number of profit streams, I’m sure it won’t be anything too bad. Two million customers in three years have already proved to themselves how easy it is to switch. In fact, they have proved themselves as one of the best banks for helping people out of this situation - just ask @Dannytc!
Hmm - the assumption that high street banks would charge more than Monzo for an agreed overdraft isn’t necessarily correct.
HSBC for instance have an Overdraft Calculator and for their most expensive overdraft rate (19.9%) their charges also come out as 50p/day for £1000… and would be less on a smaller amount overdrawn or if a customer had a HSBC account which charged a lower overdraft %.
I believe they also give an interest free buffer as standard though I think its £10 rather than £20 as with Monzo… plus (like Monzo) no charges if you are in credit at the end of the day (even if you went into an overdraft during the day)
I believe most banks wait 14/21 days after producing a statement before collecting any charges
Potentially all true. In fact, last time I checked (about twenty years ago), the HSBC buffer was £50, but I think they’re one of the good guys on the high street (which is why I hardly banked anywhere else until Monzo). I think if you take the average along the high street, my assumptions are probably OK. I certainly can’t think of anyone cheaper, fairer, more transparent, or more helpful than Monzo when it comes to a major overdraft. I remember banking with Citibank for a couple of years between 1999 and 2001. Seemed great, but when I came to rely on my overdraft, they decided to call it in with six weeks’ notice. I rang them to negotiate, and they didn’t move an inch. I scrambled the money together, paid it back and never dealt with them again.
I’m really glad this is banned. Despite some people praising its simplicity the charge is incredibly high for lower amounts. I moaned quite a bit at the time on here because the APR is several hundred percent (if you’re not hundreds and hundreds into your overdraft)
Have Monzo announced what their new fee structure will be? I imagine it’s quite the money maker when people are not using too much of their overdraft. Can we expect a relatively high APR?
While I personally don’t like the price per day that Monzo and others charge, at least you know upfront what it’s going to cost you. They’re also not that expensive compared with others. For example NatWest charge £6 if you go over the interest free buffer, even if you’ve got an agreed overdraft. So for example the Rewards account they have a £10 buffer and I have a feeling it doesn’t matter whether you get back in credit the same day, you pay the charge.
I don’t see how the Monzo model is any clearer / easier to understand than Starling have managed to make a single percentage rate by applying some thought.
You can change your overdraft limit at any time and they show you what the charge per day would be if you maxed that amount out. Nice clear amount and you know how much you (as a max) will pay up as a simple daily number. They are also always consistently cheaper up to the highest overdraft offered by Monzo (£1,000). Plus they offset any money in pots against your overall balance so you don’t have to remember to re-arrange your money to avoid a charge. All seems much fairer and in the interest of us, the customer, than the Monzo model.
Monzo’s current overdraft is clearly easier to understand than Starling’s.
For Starling’s overdrafts you need to figure out your account balance at the end of each day then use that overdraft calculator to figure out the charge each day, then add up the charges.
For Monzo’s overdraft you do: (number of days your balance ended below -£20) * (0.5).
Or you open the app(on iOS at least) click the hamburger menu(top right)->overdrafts and see how many days that month you have been in overdraft and the associated charge for those day. No calculator required.
It’s still more difficult to estimate future overdraft charges though.
I’m not saying that Starling’s system isn’t good, just that Monzo’s is definitely easier to understand and calculate.
That’s true and all, but the same points apply to an overdraft fee that was £500/day. There’s a balance between being easy to understand and being cheap/in the interest of the customer. Monzo and Starling are on opposite ends of that balancing point and I’d go so far as to say that Starling are closer to the optimal balance than Monzo.
That’s not the point you made though. Plus you can’t compare the two even on that basis as Monzo has a 1k limit. If this method was to continue I don’t believe that they would still charge 50p/day that would increase
Seeing as the FG isn’t out yet (and the timeline for implementing looks to be extended from the 6 months - looks like an April 2020 deliverable) I don’t think we will hear from Monzo for a while on their new strategy.
I think whilst a likely steady form of income - they have naturally expanded revenue streams (Loans/ Savings Pots/ Monzo Plus) so I feel like some of the losses will be spread across these.
I think considering the high APR of loans - Monzo will go for a middle of the road overdraft APR as not to promote overdraft usage and still get some income.
EDIT: my bad looks like the PS is the FG on this one
Completely agree. I was just pointing out how Monzo’s current overdraft is easier to understand, not commenting on the price (where Starling currently beats Monzo hands down).
Like I’ve said before, I’m not saying which overdraft is better and I’m not comparing Monzo and Starling’s overdrafts on price. I’m just making the point that Monzo’s current overdraft is easier to understand than Starling’s.
It was stated at launch that the 50p was just a first attempt at pricing the overdraft anyway. It stuck around for longer than I was expecting but it was always going to change sooner or later (in my opinion) so I don’t think this is that big a deal.
I was very against the daily charge idea when it was first announced but I can’t deny the clarity it brings to knowing what you’re going to pay at the end of the month. No amount of online calculators can match that unfortunately.
Monzo would only give me £500 and won’t increase it, so you could argue that’s detrimental to be paying 50p a day when others got double and are still only paying 50p a day.
I note the option to reduce my limit to say £50 or £100 which is laughable. No way would I reduce it to say £50 as that’s when you get very high AER/APRs
Being -£20 and having it in savings makes no material difference to me (for the majority of most months), but I keep my Monzo account OD at that level just as a point of principle.
Whether they will notice, I doubt it. But anyone that does data mining at Monzo will see my account is nearly always between -£10 to -£20 OR -£499 to -£500. I wonder how many other customers are like that.
I don’t use Monzo as my main account at all really (sadly), because the credit offerings are so poor. Keeping money in main (legacy bank) accounts to improve my internal scoring there will enable me to access better & more beneficial products, so it’s a no-brainer, as much as I like Monzo’s notifications etc.
I do completely agree with FCA rules, and like others strongly disagree with Monzo’s current pricing - although it must be remembered that legacy banks are a heck of a lot worse.
I worked in one bank where a customer was charged hundreds for persistently using her card (not knowing she was overdrawn). I got all the charges waived, but had to argue with Head Office for it to be done as it was well above my authorisation level.
Most banks have got better and introduced daily & monthly caps over the last few years, but say £50 of charges is still far too much for 90% of the population to be able to afford!
Will be interesting to see what the new cost/APR is on Monzo. A risk that OD %s will now go up a few points, as auth & unauth ODs must be the same price.
But it’ll never be anywhere near enough for the most disadvantaged of customers to continue to be as penalised as they currently are - banks would never let an unauth OD get high enough for it to be racking up say £50p/m in charges and the disadvantaged likely won’t have high enough limits (and if they do have a very high auth OD limit to keep the bank’s cash flowing, persistent debt/responsible lending/TCF then comes into play).
Risk based pricing is now my real concern - they’ll treat auth & unauth ODs at the same price, but authorise an OD of £50 @ 99.9% to a high risk customer, so that when the customer busts that they can then rack the charges up (but still not as awfully as before). Presumably, if the customer hasn’t applied for an OD they can’t then have risk based pricing applied to an unauth OD??
