Overdraft position

Edit - turns out there’s already a dedicated topic for the current account overdrafts, which includes the latest update from Tom so I’ve moved your post here :+1:

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@alexs Which post are you referring to? I can’t seem to find it!

Apologies for the confusion, I was referring to this topic :smile:

:rofl::rofl::rofl: Thanks!

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@jonas you also mentioned some more details about overdrafts. Is this information on the forum somewhere?

I was confused as you didn’t mention any interest being applicable and not sure if a daily fee was in lieu of interest or as well as interest.

No it’s not. Judging by the way that Monzo’s handled this sort of thing in the past, I’m sure there will be a blog post to explain how the overdrafts will work in detail, once they’re available to users.

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There won’t be any interest in addition to the fee. There is a little bit of information in the forum in discussions about an event we had at our offices a few months back, but I agree we could do more. I’ll pass this on to the team.

One thing to keep in mind is that just like everything else, what we are doing with overdrafts is an experiment, so nothing is set in stone, yet.

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What I heard was that you’re going with the 50p/day model for the overdrafts?

Just to reiterate that I think this is a really awful idea… making it essentially free to get further into debt isn’t a path Monzo should be going down (although I understand that it’s an experiment).

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In case anyone’s wondering, I’m guessing that Jonas is referring to this post -

but personally, I don’t think it’s a good idea to rely on other user’s memory of the model’s that’ve been discussed & it’s worth bearing in mind that the model keeps changing.

So it’ll be helpful to have a confirmation from the team of what’s been decided - for now..

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This is coming v soon :slight_smile:

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Apologies, I probably jumped the gun a bit in my presentation yesterday. Just for the sake of full transparency, here is what I said yesterday:

  • we’re beginning non-staff testing of overdrafts next week
  • the pricing we are testing is 50p/day with a £20 buffer and no interest rate

A full blog post explaining how we arrived at that conclusion, how testers are picked, etc is coming next week :slight_smile:

Thanks for holding us to a high standard @alexs!

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I won’t be bothering with an overdraft at 50p a day. My current bank, Nationwide, charges the same and it’s one of the reasons I despise it. It penalises those with a small overdraft as cost is the same if its £100 or £1000

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To put the 50p a day figure in context, if you borrow more than £350 with Monzo you’re getting a better rate than Lloyds (who are about to start charging 1p for every £7 you borrow) are now offering..

So it might sound like a variable rate is better but in the end, if you’re one of the 7/10 people who has an overdraft of £700 on average you’re a lot better off using Monzo’s.

Whether that encourages the ‘wrong’ behavior is up for debate of course :slight_smile: the major benefit that I can see with this approach is that users who go into their overdraft on day x of the month know exactly how much they’ll pay at the end of the month, rather than having to predict how much they’ll ultimately end up spending & therefore borrowing, in that month.

In other words, it removes uncertainty & therefore, anxiety which is one main benefits of Monzo already..

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I gather that Monzo are going to be more inclined to try and help people manage their money than ream people further in debt for more money than they have — the only reason a lot of people stay in perpetual debt is because bank fees are pretty crippling (for example, I’m paying an average of £50 a month for my Lloyds overdraft due to extra fees, and I’m gonna switch my Lloyds account to the equivalent of a debt account, pay it off, and close it when I switch to Monzo fully).

Also: £20 buffer sounds amazing considering offline payments and TfL are both jerks :stuck_out_tongue:

This can help people actively climb out of debt, but can also get them further into it. I expect @StuartM will likely be involved in helping the people with financial difficulties part :smile:

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Yes I will be! Also i’m completely against any excess/over limit fees and I agree that it is a big reason why people stay in debt or struggle to get back on top of things. I’m glad we aren’t charging them :grinning:

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I guess over a certain amount the fixed amount per day is preferable. I only have a small overdraft with Starling - £250. The £1 or so amount they change vs £15 seems a lot more reasonable. They charge 15% interest.

Maybe a compromise would be charge interest but capped at £15 a month?

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50p a day is already £15 a month. So if you’re maxing out your overdraft you’d be no better off.

But you would be if under £350 £1300 overdraft. The interest would be cheaper

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I rarely use my overdraft but I think Monzo is on the right track here but perhaps raise the buffer? With First Direct you get the first £250 interest free.

Comparison with the Starling slider shows me I’m better off with a Starling overdraft under £1300. Over that amount :monzo: Monzo is cheaper per day.

IMG_7007
Image is screenshot from my Starling account app. Interest rate on that offer is 15% EAR.

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