Making Overdrafts Available


#63

It sure is!

I should’ve split my post in two: The first paragraph was to address the assumption that most people have £1000 in savings. I just don’t think that’s true (sadly!)

The second part is addressing the need for an overdraft: To be able to serve direct debits when the balance is low (a credit card won’t help you there).

That’s true. But also the sensible thing: They need to make money, before they can give it away (in form of savings interest), and if they want to stay alive, than the amount of money they make needs to be higher than what they give away in the long term.

To put it another way: If you want savings interest you can easily open a 2nd account elsewhere. If you need to serve direct debits even if your balance is low, that’s not quite that easy.

Edit: Or, to put it yet another way: For many people it’s difficult to use a current account as the “main account”, if it has no overdraft facility. Hence the priority.


(Sam Duke) #64

Damn you and your reality! :stuck_out_tongue_winking_eye: Monzo don’t need to make money!

I have no idea of the detailed current business plan, but I was hoping their income could come from partnering with savings/loan providers rather than being one themself. It makes me sad that this we are basically admitting this is a feature aimed at extracting money from the less well off (as opposed to something like a ‘help me get a mortgage’ feature which is for people with at least a few thousand pounds, or ‘help me set up and save into an isa’).


#65

I thought we basically agreed that overdrafts aren’t for the less well off, but for those who have temporarily low balances? (It certainly seems that Monzo is taking a very conservative approach with whom they lend to, so from what I’ve heard it doesn’t seem like their aim is to extract money from the less well off.)

And, yes, long term Monzo want to make most profit from targeted advertisments the marketplace. But again: Overdrafts are essential for banking, in my opinion :slight_smile:


(Peter Shillito) #66

yes and yes. I had a holiday, and my overdraft on my current bank is reducing month by month with my salary, ditto my credit card.

EDIT: Credit card is for a one off purchase, which I can pay off over a couple of years with zero interest. I am making use of credit responsibly, I am aware overdraft is not “free money”.


(Sam Duke) #67

Hey Peter, just want to appologise for my original post, I realise it comes off as very arrogant.

I guess I’m trying to question how common your use case is amongst monzo users - who I understand/assume to be your average tech savvy twenty-something, who typically have a couple of grand in savings (or more - I’ve heard, anecdotally, monzo seems to have attracted more of the middle class crowd).


(Craig A Rodway) #68

This exactly! Scenario…

On the 15th of the month, you use your £1,000 savings - perhaps for an extravagant purchase you’ve wanted to make for a long time? :slight_smile:

On the 25th of the month, your salary is due.

On the 30th of the month, you have a major standing order for £500 going out for rent/mortgage/something else.

So far, so good!

Unfortunately, there’s been a problem with your salary. It now won’t be paid until the 5th of the following month! :scream:

Now, the situation approaching the end of the month is that your balance is down to £250; you don’t have enough to cover that major standing order; and you don’t have any savings left.


#69

In that case your employer (or whoever else was the source of the problem) is (presumably) in breach of contract, and on the hook for any consequences. (Just saying: If this has happened to you: Seek redress! At the very least they should pay any overdraft charges you may have incurred.)


(Craig A Rodway) #70

Thanks, that’s good advice! Thankfully not applicable to me though, but I know it happens :slight_smile: And it could easily be for a number of different reasons or different parties being the cause.


#71

far from £1000 savings in a news programme in the last few days someone said the average or typical (I can’t remember how they phrased it) Briton only had £97 in instantly accessible savings (when excluding term savings that locked up for a period) but I don’t know what source they used for that figure


(Peter Shillito) #72

I find it very doubtful that being an “average tech savvy twenty-something” (which I definitely fall under as someone in full time employment as a PHP developer at 26) means you have thousands in savings. Joining Monzo might help me achieve that ideal by helping me manage my finances better, but in the meantime it’s not true.

Fact is, there are many reasons why overdrafts would be useful, particularly for any unexpected expenditure (e.g. your car wheel got damaged thanks to one of Cheshire East’s world famous potholes) or you’ve just gone a bit overboard and not taken into account upcoming direct debits and the like. The last thing you need is for payments to be rejected because you’ve not got enough in your current account because then you start getting issues with credit, could get kicked out of your house, etc.

As I say, Monzo’s approach to helping you understand where money is going, accounting for upcoming payments, etc means that budgeting will become easier, going overdrawn will hopefully start happening less and, in an ideal world, the overdraft can be turned off, but :poop: happens.


#73

Or it might hinder you, by not offering you opportunities for cashback and savings interest :wink:


(Peter Shillito) #74

Cashback: Never use it, and it seems to be focussed more on going to shops you wouldn’t use normally.
Interest: I have an ISA with £1 in, which I will send money to from Monzo once I’ve got out of paying off overdraft in a few months.


(Sam Duke) #75

I guess it depends what you read, as Richard said, other sources strongly disagree with what I’ve read


#76

I’m torn to disucss this here, as it’s off topic. However, using a credit card you can get cashback on everything you buy. No need at all to change your purchase behaviour other than to change the piece of plastic you use for paying. There is also cashback for direct debits, offered by many current account providers.

These days I’d look into current accounts with interest instead, as they offer much higher returns.


(Craig A Rodway) #77

My girlfriend and I have a joint account with TSB. 3% interest on balances up to £1,500, and £10 cashback each month (£5 for our direct debits and £5 for debit card spends) for doing nothing more than using them as a bank :slight_smile:


#78

My boy has all my money…He mocks me often.


(TWM) #79

Overdrafts are evil although I appreciate sometime an essential evil,

It is important to remember that overdrafts are evil, they are a quick fix with a prolonged period of after pain.

Overdrafts should be avoided.


#80

Credit in general is evil


#81

Just signed up for the overdraft facility and found the whole process painless - good job

One small problem is that the maximum facility is only £1000 at the moment. Most banks will extend the facility to £3000 pending a credit check etc. Are there any plans for Monzo to extend the max limit to something similar? I use my overdraft for liquidity when there are big credits and debits going in/out of my account as its much less hassle than moving money from other sources (delays, admin fees, tax implications etc) and so a larger overdraft facility would be a must have for me before I switch over to the full current account

Thanks


#82

I don’t know where you got that figure from. Some banks may give £2000 equally some may give £10,000 but it depends on the customer’s personal financial situation rather than there being some magic figure banks will lend up to