That’s called self-discipline, and a lot of people are sadly lacking that when it comes to money.
That’s true some people don’t have it. Do you really think that those who don’t have it will be put off by a variable rate? I don’t.
Again, this is why Monzo needs to set users credit limits responsibly.
I think a charge which varied with the size of the debt would help, yes. Maybe not in percentage points though.
50p a day for the whole overdraft
25p a day for up to half of the overdraft
10p a day for up to a quarter of the overdraft.
Simple to understand, but still encourages smaller borrowing. Just don’t get crazy with the banding.
I really like this idea. But yes, keep it simple (like you’ve illustrated), not with too many bands.
If someone isn’t put off my paying 50p whether it’s £100 or £500 then they’re definitely not going to be put off by paying less for a smaller overdraft. If anything, I think it would encourage them to get a larger overdraft because “It’s not as expensive as it could be”.
The numbers were plucked out of my butt, so don’t read too much into them compared to the current charge.
I love that there is so much discussion on pricing here and it is great to hear what people think. For what it is worth, my opinion is that when it comes to overdrafts the 2 most important things are;
- Transparency over how much it costs
But most importantly;
- You don’t get hit with extra fees for going over your limit or for bounced direct debits/standing orders
For me it’s the latter that can be really dangerous and can get people into a cycle of debt that is hard to get out of if you live close to your limits each month.
I agree, about the cycle of debt. But if you’re borrowing to pay for essentials, like food and energy, then you’re already losing. Your sole focus should be on how to have more coming in and less going out.
And that ain’t a popular opinion in today’s society.
Yes you are right. If you are borrowing consistently to pay for essentials then there is likely a wider problem but paying interest on an overdraft is going to make that worse.
Banks could do more to step in and help customers who are consistently in their overdraft. I found this recent report from Stepchange quite insightful. It seems obvious that living in an overdraft all the time is very indicative of a money management problem.
There is always a balance between intervening to help a customer in trouble and not being too intrusive and we aim to get this right. I’d love to share what we plan to do with the community - perhaps a future blog post!
Monzo’s overdraft, fintech’s payday loan
Monzo always stated that initially they would raise income through overdraft fees, if they make the overdraft free, cheap etc then where do they get their money? In the long term the market place should be the bulk of income. Does this mean Monzo are using its customers to keep it going in the short term, maybe? And personally I don’t mind, but yes not everyone’s finances are equal.
You should check out Barclays overdraft fees now they are eye watering and typical money grabbing Barclays.
They did & AFAIK that hasn’t changed. I’m not sure anyone’s said anything about free or cheap though
They’ve always said that launching the current accounts would significantly reduce their losses per customer & while some of that reduction is coming from not having to pay 3rd parties, since the overdrafts & CA go hand in hand, I’ve also assumed that they are counting on this revenue to keep them going, until the marketplace starts earning decent revenue for them.
I’m happy with overdraft pricing, but not happy with £20 fee free buffer … it makes overdraft expensive.
If Monzo increases fee free buffer to £50-£100 it will be the best current account on the market
if they increase it to £500-£1000 it will be the best…but seriously they have to set the amount at a sensible level. The idea of the £20 is for the occassional small overdrawing when otherwise you would not use your overdraft, but once you start talking of £100 you are effectively not offering a buffer but a free overdraft, and Monzo needs to charge for overdrafts to break even.
Why not ?! First Direct offers £250 fee free overdraft…
To avoid overdraft costs I can open basic bank account…
Does anyone on here think that Monzo’s proposed overdraft fees are expensive?
Can’t help thinking that Monzo have missed a trick here in their quest to offer something different from the banks we are all used to. Yes, the suggested way whereby the app informs us how much we are accumulating in terms of fee seems great and yes these seem completely transparent and easy to manage. But 50p per day? Really? How is this different from any of the other big four high street banks?
I stumbled across a post written by the Deputy CEO - Paul Rippon in September 2016 when Monzo were thinking about how an overdraft pricing structure might work and the following extract stood out to me:
“the ‘average’ rate of overdraft interest charged by UK banks is about 20%. In other words, if you borrow £100 it will cost you about 5p per day. However, over the last few years many banks seem to have concluded that their customers don’t understand percentages, and so instead they charge 50p or £1 per day for going overdrawn. You do the maths! I reckon that’s more like 200-400% in terms of interest. And I thought payday lending was supposed to be expensive…”
I read that and thought that was a fair reflection of the current state of play for many of us. And then I looked at what Monzo were proposing for their overdraft facility - 50p per day! So Monzo, well done - you’re right up there with the payday lenders!
To me, that doesn’t look very good. Firstly if an average bank (according to Paul) charges 20% (or 5p per day) for every £100 (which seems reasonable to me) then why not at least follow this pricing structure. Secondly, by setting the fees at a daily rate of 50p Monzo are inadvertently positioning themselves amongst the other big bad high street banks and charging the 200 - 400% figure which according to the Paul is pay day loans interest!!!
My main bank is HSBC. I personally do not use my overdraft that much but I know that if I do go overdrawn by anything up to say £300, by Paul’s maths its only going to cost me 15p per day. Over 15 days that’s going to be £2.25. Over the same period, Monzo propose to charge £7.50. I don’t know about you but to me that doesn’t look good or indeed competitive, at all. Equally, it doesn’t make me want to make the final leap and move all my banking to Monzo.
Yes charge a daily fee, be transparent on fees accrued, but above all be competitive and me us feel like we are being offered something different because at the minute it feels like we’re not.
Why not? Well because First Direct are not just a bank but a subsidiary of a huge bank with other revenue streams giving them the leeway to offer larger buffers, while Monzo without any alternative revenue streams (other than potentially the planned marketplace) needs to gain revenue from overdrafts.
Overdrafts in the UK average according to some sources about £170 so any buffer much higher than £20 would seriously cut into likely revenue, but if it was £250 it would mean getting revenue from far too few customers.
(you say it is fee free not that it is interest free)
Here’s what I’ve said before about FD’s ‘free’ overdraft - there’s an account fee:
Would that not encourage you to do something to not pay that fee?
I’m sure a lot of us could find that money somehow just buy selling stuff we don’t need it even borrowing from a friend.
Not the perfect solution but it’s there. Stops being a solution at higher amounts admittedly.
The overdraft fee is good if you have very high debt though - which goes against those saying it’s to encourage people not to use it. Its penalising those who dip into it on occasion who are potentially trying g to stay afloat and saying to those with huge debt…move to us its cheaper that NatWest! It’s nothing to do with financial management and clarity. Its easy money.
Cue the same three people telling me it’s the greatest thing ever…