The Overdrafts Pricing


#219

Well IMO, overdraft should be short term emergency loan. If you require something for longer period of time then overdraft is the wrong financial product for you. In that case, I think Monzo should help out either by switching you to a product that’s more suitable for your use case, or offer a way to get out of the vicious cycle of debt.

“Loan sharks” are different though - they spot people that are financially vulnerable then offer them a product to trap them in the cycle of debt they can never get out of to constantly squeeze money out of them.


(Alex Lord) #220

A other vote perhaps on whether actually a standard percentage based would do is just fine? And other options of course?


(Peter Shillito) #221

I’ve been doing some maths :scream: as I got accepted for an overdraft with Monzo this morning (which was a prerequisite for me using CASS when I get the opportunity). If I’m borrowing something like £50-100 for a week or two, Monzo seems fairly reasonable, especially compared to my current bank Natwest. However, If I need to borrow for the full month, I’d need to borrow roughly £500+ for it to be cheaper than Natwest based on current interest rates (plus the £6 monthly fee). It’ll be an interesting change in handling an overdraft, as I’ll be focusing on reducing days overdrawn with Monzo rather than figuring out whether I go overdrawn at all and saying screw it with Natwest.


#222

I do feel like the pricing of the Monzo overdraft will help people with thinking twice before over spending, which is no bad thing. :slight_smile:


#223

You would think the price of pay day loans would make people think twice…but hey ho…


(Andre Borie) #224

Monzo overdraft is still better than a payday loan IMO. No dark patterns or tactics to get you to pay more - simple, clear pricing, and a cap of about 15,50£ in the worst case scenario.


#225

I agree! I just mean in general, you’d think people would think twice about borrowing … :slight_smile:


#226

Personally I feel that Monzo are being transparent and then using it to justify charging more than others. I know they have said they don’t plan to be the cheapest but in reality its cost which is the deciding facto for most people


(Marcel Ruhf) #227

Clearly not - as Nationwide has been the largest beneficiary of CASS (having the largest number of customers using it to join vs the number of customers using it to leave them), and they have a similar charging model for arranged overdrafts as Monzo, while charging extra for unarranged overdrafts and bounced direct debits, both of which Monzo doesn’t charge extra for. Also, most high street banks’ overdraft charges are a lot more expensive, and lots of people still seem to stick with them.

It’s not the best pricing model - but it’s not the worst either (far from it). As far as I’m aware, no other bank matches First Direct’s or Starling Bank’s overdraft pricing - although from the looks of it, even first direct charges extra for unarranged overdrafts

Unarranged fees might not affect us, but I’m of the view that charging those worse off for a bounced direct debit - which doesn’t involve any hard work on the part of the bank - is just unfair at best, unethical at worst. So I’m more then willing to support banks like Monzo or Starling, who, when it comes to charges, treat everyone equally.


(Rowan Blackwood) #228

I have no intention of using an overdraft (I don’t currently have one with Monzo) but I’m looking to switch and would like an emergency buffer. This got me thinking about the Monzo overdraft if I switch. I’m not great at maths, but if I used say £200 of an overdraft over 30 days (£15.50) am I right in thinking that’s the equivalent to 90% interest? This seems pretty steep to me so I’m hoping someone could clarify. Thanks.


#229

How much of a general emergency fund do you have?

IMO it would be best to build this up, store it somewhere it gains some interest, and only use the overdraft for the moments between needing to pay for something in an emergency, and transferring in money from your emergency fund. In this way you may never hit any fees, but have the peace of mind that if you needed to dip below zero momentarily you could.


(Rowan Blackwood) #230

So I rarely use the one I have and with Monzo and starling etc it’s way easier to keep an eye on things so I don’t end up needing it. I was more curious about the percentage equivalent based on the example I gave above. I used an online pa calculator and calculated it over 30 days and 90% was the rate it gave which seemed high. I get the need to make money etc I was just a little surprised to see a payday rate lol. I’m assuming I calculated it wrong, but was just hoping someone with a little more skill in maths could clarify. I’m also curious as to why Monzo didn’t opt for a percentage but have the ability to see the equivalent in terms of actual cost via a ‘slider’ for example. I.e 15% interest with a slider that I could move that would say “£200 over 30 days will cost you xxx amount” then it would be cheaper and both easy to understand :slightly_smiling_face:


(Paul Henshaw) #231

I must admit I pretty much agree.


(Gareth) #232

You’re low-balling how bad payday rates are:

  • Representative 1293% APR
  • 1294.1% APR Representative
  • Maximum 1698.1% APR

An overdraft isn’t really for anything other than short term borrowing (think more: a couple of days before payday), that’s why the APR looks high. I’d say 30 days is more credit card (if you can repay it all after 30 days) or loan (if you are underestimating the time you need to repay without going back into debt later).

Monzo are now slowly offering loans to the same size as the overdraft, which does have a more suitable APR, with 3/6/9/12 monthly repayments. So an option would be overdraft -> loan.

An emergency buffer (or just plain saving) will always be best, but it’s understandable that building (and rebuilding) a buffer takes time.


(Rowan Blackwood) #233

That’s true, my point was more it seems pretty expensive. You make a good point re the loan etc. I historically have viewed overdrafts as more of a few months rather than a few days, and loans as a few years rather than a few months, but perhaps that landscape is shifting. Thanks for your reply.


(Gareth) #234

Why have account fees when some people are happy to be charged a few pennies a day for a few months? Except it adds up… Longer overdrafts might come from student living where overdraft is somewhat the norm because it’s free.

Loans are still more years than months - cars, home improvements etc. and credit cards more for months (0% for X months etc), but that’s more a gap in the market I guess Monzo hope to fill.


(Dan Mullen) #235

The high rate aside, the one thing I find most unfair about Monzo overdrafts is that money in Pots isn’t taken into account. If money in Pots earned interest then perhaps it would be slightly easier to swallow - I could appreciate if the Investec Pot was disregarded for example. But charging someone for being overdrawn when they have money deposited with Monzo giving them an overall positive balance is, IMHO, completely wrong.


( related to Monzo CEO, Investor in Monzo ) #236

completely stupid I would say - move your money from pots - no overdraft - simple, live within your means, in my opinion, if you have money use it, as opposed to keeping your money in a pot and then saying that when you borrow money to finance something else that the overdraft fees are high / too high :slight_smile:


(Tony) #237

Oh God, why has this been resurrected? It’s the Jason Voorhees of topics.

Overdrafts are a flat fee. If you think they’re high, don’t get a Monzo overdraft and don’t use one. If you think it’ll be of use as a temporary buffer and don’t mind paying a fixed amount for each day you use it, then use one. If you’re always in your overdraft, get one elsewhere as this probably won’t work out the cheapest option. It’s very simple.

Endlessly kvetching about the way Monzo does overdrafts compared to others is pointless as they clearly have no intention of changing the overdraft model any time soon.


(Dan Mullen) #238

By that rationale, what’s the point of this community? It’s the thing that puts a LOT of people off Monzo - the ridiculous way some people try to shut anyone down that expresses an opinion they think reflects badly on Monzo.

How about this… if you’re happy with the overdraft facility and have no interest in discussing it, just don’t bother reading or posting on this topic? Then those of us that are interested in discussing it can happily do so.