Fall back to savings instead of overdraft

Following on from @AC’s (very sensible) response about not offering overdrafts, I’ve been reflecting a bit on my own situation.

I have an overdraft but almost never pay any fees on it. I use it as a buffer in case if cash flow problems, or something to use in-day, for example to pay the direct debit for my credit card whilst I manually transfer some savings in later in the day.

I wonder, though, whether instead of overdrafts, Dozens could perhaps think about offering a unique financial product. One that allows you to create your own overdraft: you put money in a savings account that is offset against your current account, allowing you to spend against it.

It would support the FINtech narrative (and I could only really see Dozens doing it), provide some nice press and be a lovely option to wean people like me off overdrafts that they don’t really want or need, but still provide a bit of a safety blanket.

What do you think?

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This is essentially the same proposition as my favourite Starling feature.

Money in spaces offsets your overdraft - so as long as you’ve saved more than you go overdrawn by you don’t pay interest - but still have that bad feeling of showing a negative balance…

Something like this could work very well.

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Does Starling authorise any transaction to the value of the savings in your pots, goals, spaces,
savings? I thought that if you didn’t have an overdraft, they’d still stop the transaction?

I’d like to see Dozens do this properly, with interest (or something) on the savings, but with them working as a safety net if needed.

As far as I know…

You have to have an overdraft and they will authorise any transaction within your overdraft limit.

That is to say even if you have 1000 in spaces but a 500 overdraft limit, they will only let your balance go to -500 (of course you can whip 500 out to use all your savings - that being optionally done automatically would be a plus, I agree).

So as far as I can see, all the immediate decisions Starling make are based on your overdraft limit regardless of savings. Then the end of month interest calculations look at your spaces to see if you’ve really borrowed anything.

You could slice it different ways of course, but the basic idea of lying to yourself about how much money you have had worked well for me :slight_smile:

Might be tricker for Dozens as I think savings are held elsewhere?

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I think this is where Dozens’ financial innovation comes in. Agree that they’d need to hold the money, but if they could find a way to do this, then I think it’d both help adoption, generate some press, be opt-in, but also not be reliant on credit scores and overdraft limits like Starling is.

Totally agree, this is a perfect example of an innovation only a company not aiming to make money from other people’s costly borrowing can create.

I wonder how much the big banks make every month by people dipping into their overdraft despite savings - either without noticing, or because of a system that makes it too much effort to lend themselves £100 from their savings until payday…

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It sounds like you’re thinking of an offset mortgage, but in reverse. So, you’d get interest on the savings, except when they’re covering your overdraft.

Could be interesting!

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