The point of Monzo though is to help you money your money better so you never need to use your overdraft, especially for bill payments
True, but I think not having an overdraft ‘just in case’ would have been a deal breaker for #fullmonzo for me too - sometimes you need a few months of Monzo to get your finances in shape!
Yeah I guess that’s fair enough, I’ve never used an overdraft, so guess it’s difficult/wrong for me to comment
Ah interesting! Never even any 0% ones?
I’m probably one of these people that banks hate - I hate bad debt, but use free overdrafts, 0% credit card deals etc to make my money work better for me.
I’ve never paid a Monzo overdraft fee, but it’s useful to avoid bounced direct debits or transactions - for example, I can go overdrawn in the morning with then transfer some money in before the charges hit.
PS Definitely not wrong to comment - different perspectives are important!
So, this has been discussed a few times across various threads, and perhaps this isn’t the right thread for it…
But the way people think about overdrafts is part of the problem - It’s a problem created by this illusion of free money which stems back to the days of student loans/bank accounts with little to no interest on borrowed money.
To me, an overdraft is a “no-no” - If I’m in it, I’ve done something wrong (this is just my thoughts in my situation, I’m not saying it’s the same for everyone).
My “overdraft” is effectively the last £500 in my current account - That’s my “emergency buffer”, that other people will use an overdraft for.
I was genuinely surprised to see that the lack of overdrafts were a barrier to people joining Monzo (or going #fullmonzo).
I guess if you don’t have any savings what so ever, but want to use Monzo’s features in order to build up some savings… but need that initial safety of an overdraft - I can absolutely see how that would work.
I also find the discussion around overdrafts very complicated when it comes to Monzo - Not the fees (that’s a different discussion for a day never to be had again), but the fact that Monzo is looking to turn a profit and make money, but that is (currently), through lending, and having people pay back more than they borrowed.
Of course this is banking, and it’s how it’s always worked - Monzo aren’t a charity. It’s just that until Monzo can generate alternative income streams, the “profit from lending” side of things seems to be the opposite of what Monzo are trying to achieve.
I think we need to separate out the current banking model in the UK and Monzo’s approach to it.
On the banking model, I’ve said before:
Ultimately, I don’t think banking should be free. It means that cost-effective players like Monzo can’t compete effectively and you end up with a regressive system where those most in need subsidise those that aren’t.
But Monzo can’t solve that problem alone. And, like you say, it needs to turn a profit. My view is that a clear and transparent overdraft fee, with help given to those in need, is a reasonable way to do that in the short term. I’d hope the fee goes down in real terms as revenues grow from elsewhere in the future, though.
But back to the topic, I think that overdrafts are essential for the vast majority in the current banking system - like as we might to change that.
Broken banking: Should we pay for bank accounts?
Yep - Agree with both points.
More weight is placed on simplicity over “cheapness” in this system, and if that is what helps people the most, then great. Like you said, as Monzo become profitable, and generate income from elsewhere, it would be great to see this fee reduced.
I’m still struggling with this one, as it implies that the vast majority don’t have any form of saving at all - Is it the banking system that is the issue? Or is it the fact we are conditioned to factor in our overdraft when financial planning?
Why not forget about the first £500 in your account, and treat that like an overdraft? Anything above £500 is your available balance, and then you always have that safety net if required (swap £500 with whatever overdraft you’d want).
I appreciate that this line of thinking is not adopted by many people, and it’s purely my perspective on it.
I’m not saying this is right or wrong - my hypothesis (and it’s just that based on my experience) is that most people won’t think of it this way. Rather than think again about how to run their bank account, they’ll just see that they can’t get an overdraft and not sign up to a bank without one. I could be wrong, but I think a fair proportion would have these views.
Speaking personally, I’m lucky to have the means to do that. But I think there are three reasons why I don’t:
My savings are earning interest which, despite the pitiful rates, is still greater than 0% for sitting as a buffer in my current account.
Psychologically, if I see £500 in my account I think spending money - it’s not as effective as seeing £0. I think I’d struggle to readjust and not see it as disposable cash.
In the current set up, I can go overdrawn during a day and pay no interest. I can quickly transfer money from another account with a few taps of my mobile phone, so my (say) £500 buffer can instead earn me that all important 0.5% interest!
I’m not trying to change anyone’s mind here - and I agree that avoiding debt is best. But the system provides incentives to use the system the way that I do, I think.
Yeah, I completely agree with all of that.
Although, you are definitely speaking as someone who is control of their finances, and someone who regularly checks their accounts (daily from what you’ve said).
It would be good if Monzo could develop a way of “hiding” a set amount from you balance - Similar to pots I guess, but actually in your current account, so you can’t see it (but it’s there if you miscalculate bills for example).
Although this goes back to the tricky position Monzo are in - If they develop things to stop people going in their overdraft, they are taking away their number one source of income right now.
Maybe one for the future!
If you go into your overdraft each month then you’re not budgeting / managing your money correctly or you’re living beyond your means. As you mentioned it isn’t free money so you need to cut back on something to prevent that the next month. Be that reducing your TV package, the number of night outs / takeaways or cancelling that subscription you don’t really use often until you get a nice balance where you actually have your own cushion of money each month instead of relying on the bank.
I understand it is nice to have it there for the unexpected but if my boiler suddenly broke it wouldn’t be my overdraft that I’d be using, it would go on a credit card or be taken out my savings. In my opinion overdrafts are only really needed for the first few months until you sort out your budgeting, then for anything beyond that I personally don’t think you should be relying on them. Due to this I don’t consider overdrafts a deciding factor when choosing a bank.
I was actually thinking about this when I was replying earlier - I’d actually started writing about it before I took it out!
I mean, this could be mitigated by a Monzo ‘emergency’ or ‘overdraft’ pot which automatically covers expenditure after the main balance is zero. So basically a self-serve overdraft with your own money.
This is a tricky line for any business. I understand from Monzo that they are not trying to encourage anyone to go into an overdraft unnecessarily or promote debt - but are simply providing a transparent product for if they do. So I think we’re safe on that front.
But could Monzo develop an overdraft pot? It seems technically viable, so yes. Have they even considered it and wondered about the ethics of it? Who knows!
(For the avoidance of doubt, I don’t think any inaction on this front is remotely unethical!)
Not all lending is evil.
In fact, the whole point of it, is that you “profit from borrowing” as well as “profit from lending.” It should be win win - that’s why it’s such a massive part of our economy.
I’m well aware of horror stories around credit card debts, pay day loan sharks, and so on. But try to think about the other stuff: borrowing money to buy a car, so you can get to work and build your career; borrow money for a house, which you can develop, live in, and invest in; Tom borrowing money to build Monzo, which he hopes to turn into a successful, profit making business.
Responsible lending is a good thing. (And yes, irresponsible lending is very damaging - cf sub prime crisis.)
I absolutely agree - But in general, I’d say that kind of borrowing is not your typical overdraft, and the interest rates are much lower (sweeping generalisation).
The UK system is built around free banking, and therefore by default, you have the people who need to borrow money, subsidising the bank accounts of those who don’t need to borrow money (which I’m sure we can all agree, is not an ideal position to be in).
Monzo is no different in that respect (at the moment). It’s not that I believe Monzo want to be in this position - It’s just that’s how banks operate, and Monzo need to start making money in the first instance, before they can flesh out their broader plan.
I haven’t seen any official release from Monzo about their “loans” proposition, because I had thought it was just another name for their “spread the cost” product - But it appears they are both different products.
Regarding the STC product - It follows the overdraft designing in that it’s very simple to understand, but it’s not the cheapest by a long way.
So all of these things are around long term lending, which Monzo isn’t offering yet.
Monzo is squarely in the short term lending, with medium/high interest rates, which unfortunately tend to get paid by the people who are in more need than others.
I’m not saying Monzo are taking advantage of anyone, but I’m really keen to see the livestream about how Monzo plan to make a profit in the short term, because they have championed equality, fairness, transparency etc, and on the whole, they achieve everything in those spaces.
Which leads me to believe there is something else in the very near future which will be a money spinner for Monzo, as I don’t believe they’d have an entire open evening around how they will make money from the people who need to borrow from them!
I really, really like Monzo, but for the reasons below I’m not quite ready to move just yet.
- Unable to open another account - with FD I have two accounts, one for bills which I transfer a set amount into to pay my bills for the month (direct debits)
- No web login - loose/break my phone or tech issues
- No iPad app - I use my iPad a lot
- No interest / investment on pots
- You could utilise pots for this
- We do have one! web.monzo.com
- We’re a mobile bank, so we’re not looking to optimise for the iPad.
- We’ve just launched a savings pot where you need £1000 in the pot to earn interest.
That doesn’t quite cover the use case @Kwolton mentions in point 1.
I do things the same way, at the beginning of the month, money leaves Monzo for a bills account. Then I forget about it, those bills are covered. With a pot you have to move the money back for each bill & worry about one bouncing because your ‘main’ balance can’t cover it.
I can totally understand the iPad point.
Perhaps it is my fault, but I don’t see Monzo as a ‘mobile’ bank, I see them as a branchless ‘app’ based bank.
I do lots of banking at home (when I’m often on my iPad).
I do appreciate that Andy! I did say could and we do want to make it a bit more seamless.
I’d argue that iPads are pretty mobile, but get what you’re saying. I personally don’t see Monzo as ‘mobile’ as in “on your cellphone”, more ‘mobile’ as in “always with you”
True, true. I just know we have no plans to optimise it for the iPad!