Banking industry general approach to overdrafts
Posted: May 2nd, 2018, 9:54 am
I currently have a £1,000 overdraft on my current account which I never use but like to have it there in case some sort of mishap one month causes my credit card direct debit payment to fail (e.g. an automated credit into my account fails to be paid or I forget to transfer in extra money to meet an unusually high monthly bill). The £1,000 overdraft is however a lower safety margin than I am comfortable with so I also keep a £5,000 float in my current account at all times as an additional buffer.
I just logged onto my Natwest current account and it is displaying a message that I am "highly likely to be accepted to increase <my> limit up to <a-five-figure-sum>". I'm very tempted to apply for a £10,000 overdraft limit to give myself a generous safety margin and also so that I could reduce the buffer/float in my current account to something like £1,000 and free up that £4,000 for other things.
The thing that's making me pause though is that I have the vague feeling that I read somewhere once that banks tend to try and routinely trim their overdraft allocations to people who don't use them since the sum of all currently unused overdraft allocations is a potential liability that counts against them in various ratios used for banking industry stress test calculations, required capital ratios etc. If this is true then I might well do this only to find a year later that I get a letter saying "you haven't used your overdraft in the last year, we're reducing it to £1,000" and I need to go back to plan A.
Does anyone have experience of having a pretty decent-sized (five figure) overdraft facility for years and years that they have never used a penny of? Did the bank leave you alone completely? Did it write to you proposing a decrease that you successfully rejected (and if so then how often did you have to go through that process to tell them you still wanted it)? Any other thoughts or observations?
- Julian
I just logged onto my Natwest current account and it is displaying a message that I am "highly likely to be accepted to increase <my> limit up to <a-five-figure-sum>". I'm very tempted to apply for a £10,000 overdraft limit to give myself a generous safety margin and also so that I could reduce the buffer/float in my current account to something like £1,000 and free up that £4,000 for other things.
The thing that's making me pause though is that I have the vague feeling that I read somewhere once that banks tend to try and routinely trim their overdraft allocations to people who don't use them since the sum of all currently unused overdraft allocations is a potential liability that counts against them in various ratios used for banking industry stress test calculations, required capital ratios etc. If this is true then I might well do this only to find a year later that I get a letter saying "you haven't used your overdraft in the last year, we're reducing it to £1,000" and I need to go back to plan A.
Does anyone have experience of having a pretty decent-sized (five figure) overdraft facility for years and years that they have never used a penny of? Did the bank leave you alone completely? Did it write to you proposing a decrease that you successfully rejected (and if so then how often did you have to go through that process to tell them you still wanted it)? Any other thoughts or observations?
- Julian