One bad habit I always revert to is sitting in my overdraft at the end of each month. Not by much, less than £100 say. An old habit from university days maybe? It perhaps provides me with some nostalgia of more relaxed days.
The thing is I tend to ignore it. As (I think!) I am saving quite heavily I don’t get bothered by a few pounds in overdraft interest. The hassle of shifting money about to stop a few quid of interest paid doesn’t seem worth it.
By the same token I get excited when the interest I receive on savings goes up each month by far less. Why?
It’s just a quid
Halifax use this to their advantage, the clever beasts. The overdraft on their current account is at only £1 a day. £1! Who’s worried about £1. Not me…. until you actually think about it for a bit.
The overdraft doesn’t start until you are £10 overdrawn, you get a £10 freebie. Hoot! So if we look at £10 and £1 overdraft interest a day, this is 10% a day or….. 3,600% a year. Say what!?
As we increase the overdraft this rate reduces, but it takes all the way until we have a balance of around £2,000 overdrawn to get to normal overdraft interest levels of 19%.
Now 3,600% is a number that grabs my attention. Christ, on £10,000 of savings that would leave me with £365k in a year or £13million in a couple of years. Any one want to borrow £10?
Should I be angry at the bank for this? Nah, I struggle to be. They are lending me unsecured money with no fixed repayment date. Besides the overdraft can be useful and I knew the terms up front.
What I am going to do is change my current account though, for one with an overdraft at a few hundred quid interest free.
What is interesting is that I have been going a few quid overdrawn towards the end of every month and accepting a £1 or two in interest without thinking about it. In absolute terms it’s not enough to raise suspicions. But in my other account that has a 19% overdraft I never go overdrawn, as 19% means more to me than £1.
Time to reset a small part of my small brain.
Anyone have any of these mind blocks whilst saving?