Interest-free overdrafts is a trick tactic most mainstream banks use though. They know students will very often go into overdraft so they give them free overdraft thinking everything’s fine. But the moment they graduate, they suddenly find themselves deep in overdraft and their 0% is gone and can’t afford to clear the overdraft and ended up paying lots of interest on it.
Personally I don’t think this is a very ethical way of doing business and I wouldn’t want Monzo to go down into this route. Give free money then take it away suddenly when customers are most vulnerable and end up incurring charges…
I think we should be clear that though this may be a tactic a lot of banks also offer time after graduation interest free.
I had 4 year student overdraft with HSBC and 2 years after I graduated as well. A good chunk of time to get a job and climb out of the overdraft without paying interest. Certainly pays to shop around!
I wish I’d had Monzo at uni. In its current format would have worked fine as I rarely went into my overdraft, and when I did it was more of for a few days and 50p a day would have not been a problem (and stopped me staying in it). The fact that I would have instantly seen how much I spent each day would have been a great benefit, and would have helped me to budget.
Would also agree with this. I don’t like this trend of tempting students into using large overdrafts (regardless of the interest or lack thereof). It’s not a good habit to get into and honestly the requirement to use it just highlights how ridiculous it has become to study here. An overdraft is not an emergency fund.
How long is your degree? Are you studying in London? Have you made any attempt to reduce costs by working part-time or over the breaks? This seems like a colossal amount of money so I’m curious as to how that’s come about. Honestly I’m not sure I’d have bothered going to university if I was faced with that amount at the end.
Four years, in Bristol. My degree takes up around 50-60 hours a week so I don’t really have time for anything else. Currently living off student loans, which have an incredibly annoying payment schedule that makes my overdraft necessary.
I guess my statement is better written as “An overdraft is not a good replacement for a savings-based emergency fund”.
I too am a great fan of the “pay on first day of term” schedule which screws with the ability to provide a deposit or pay the first month of rent in advance /s
Not as easy as it sounds though. I’ve racked up about 3K of credit card debts because it’s sooooo easy to get 0% purchase interest credit card these days. I’ve been trying to clear this 3K credit card debt before my 0% interest period runs out but with rent+bills+living expenses, I can barely scrape together enough money to pay down my debt quickly, and I can quite imagine me running out of promotional interest period and starting to pay the 18.9% interest on my balances in the future. Based on the current rate of repayments I can afford, I would need at least another 12 months before I can clear my credit card debt.
Pretty much same tactic many credit card companies use - offer very cheap credit to tempt people into debt, full well knowing that many people will not be able to clear them before 0% interest runs out and start generating revenue. You might be lucky to be able to find a high-paying job right after graduation to pay off debt, but chances are that a sizeable population of customers won’t be able too, and it’s these unlucky ones that are funding your cheap credit.
Personally, I think free overdraft with excessive limit shouldn’t even exist in the first place. In my opinion, overdraft are meant to be an emergency cash buffer that’s meant to tide you through very short period of time. For example, you fall short of cash just a couple of days before payday, but your direct debits are all due before payday and you need that extra bit of cash just to make sure direct debit doesn’t fail. Overdraft therefore is useful to help you tide through that short period of time, until your pay comes in and you can clear the overdraft quickly.
Overdrafts aren’t meant for long loan durations. If you need money for non cash-emergency situations or for big ticket purchase, you’re better off taking out a credit product or a loan rather than relying on the ‘free overdraft’ because you could very well find yourself too deep in overdraft to come out towards the end of that ‘free overdraft’ period and racking up a lot of fees/ interest.
Overdrafts in my opinion is really meant for very short durations an in situations where you can clear it easily once your pay comes in, e.g. rent is due on 1st but pay is delayed until the 3rd, and you need that extra cash just to tide through that 2 days etc.
Do what I did when I got a £2,000 student overdraft with Natwest in 2004 and spent it. I managed to keep it interest free until 2015 when I finally paid it off (I did have to transfer x amount of money in at times but I took it right back out).
2004-2007 Student Overdraft (Undergraduate).
2007-2009 Graduate Account.
2009-2010 Switched back to Student Account (Masters).
2010-2011 Graduate Account.
2011-2012 Switched back to Student Account (PGCE).
2012-2015 Graduate Account (and paid off by the end of the graduate account).
2017 Closed account.
I think they’re really missing a trick by not tapping into students and those attending universities, high street banks are offering compelling offers while Monzo doesn’t really have a lot of information relating to students and those attending university. Granted it is a relatively new bank but it would be interesting to see what happens in the future.
Anarchist
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I’m not sure that Monzo is in a position to be making specific offers for particular demographics. They want to be a bank for everyone, and it is a very new bank, as you say.
They were going to various campuses and handing out cards 1-2 years ago and a couple of my friends heard about Monzo that way. I think it might have been offered on a student discount website and a partnership with O2 (?) I can’t remember.
I think a lot of students would want accounts with a substantial interest free overdraft and it would be risky/ unprofitable for Monzo to do so, plus a little iffy ethically since many students struggle to pay that off after.
I think it does have promise though and several other people have mentioned this on forums before about how traditional banks make it very difficult for a person who has recently entered the UK to get an account even if they have valid documentation to prove they are here legally.
Universities usually partner with banks to help students set up an account (which takes a month to open) and I learnt the hard way that it is impossible to do one on your own. You need a proof of address on a bill that you can’t get unless you pay by card, or a million other seemingly pointless documents. I know we have that awkward video identity verification on Monzo but it was infinitely easier to open an account with them than a legacy bank. I really think Monzo could tap into this population of new workers/ students which might not even be aware it exists.
this multiple times.