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Banking industry general approach to overdrafts

Julian
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Banking industry general approach to overdrafts

#136199

Postby Julian » 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

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Re: Banking industry general approach to overdrafts

#136213

Postby Alaric » May 2nd, 2018, 10:29 am

Julian wrote: Any other thoughts or observations?


NatWest were doing a purge on this some while back. They left an unused overdraft limit alone, but reduced the limit on unused credit cards.

Perhaps you have to ask the question as to what is the review process for reducing overdraft limits?

Banks are or were very keen to lend money to those who didn't want or didn't need to borrow it. The notion that the higher the potential loan, the more capital they need is relatively new.

Julian
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Re: Banking industry general approach to overdrafts

#136247

Postby Julian » May 2nd, 2018, 11:22 am

Thanks Alaric. I certainly got one of my unused credit cards purged a couple of years back, not by Natwest though (it was Barclaycard). That's one of the things that made me wonder about the general issue of the cleaning up of unused credit lines spilling over to overdrafts.

- Julian

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Re: Banking industry general approach to overdrafts

#136273

Postby Dod101 » May 2nd, 2018, 12:03 pm

For years I had £10,000 on both my MasterCard and my current account with HSBC Premier. I have no idea why they were that high. Then one month some years back they wrote to me asking if I would be happy if they reduced them both to £5,000 where they now sit. I never use the overdraft but just occasionally I need to watch my limit on my MasterCard, usually paying for an expensive holiday plus a few other bits and pieces. They were obviously having a purge, but I doubt that your bank would come back to you any time soon and I would go for it especially as it is presumably not costing you anything.

Dod

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Re: Banking industry general approach to overdrafts

#136464

Postby stevensfo » May 2nd, 2018, 10:20 pm

They left an unused overdraft limit alone, but reduced the limit on unused credit cards.


Same here. Lloyds TSB reduced my card from 5000 to 1000, probably because I never used it.

My current account overdraft is 5000 and hasn't changed for the last 10 years even though I've used it only a few times, very small sums, and for maybe 2 days.

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Re: Banking industry general approach to overdrafts

#136466

Postby Pipsmum » May 2nd, 2018, 10:45 pm

They purged my credit card limits because although I had used them for stoozing long ago, I hadn't used them like that for a long while. The mbna used to have a CL of 24k long ago. Very useful in the long lost days of high interest bank and building society accounts. Nat west have left the 5k overdraft facility alone so far.

Julian
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Re: Banking industry general approach to overdrafts

#136546

Postby Julian » May 3rd, 2018, 11:57 am

Thanks all. It sounds as if credit card limits are the primary focus and I might be OK with a big unused overdraft limit. I'll call and have a full and frank discussion first, I do have an assigned personal manager so that is easier to do, but it looks as if this is something I should finally get round to doing. It's been on my "I should get round to looking at this one day" list for a few years now.

- Julian

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Re: Banking industry general approach to overdrafts

#137136

Postby MikeyWorld » May 5th, 2018, 4:46 pm

For a time I found an offset mortgage useful. It has been fully offset for years, but I've always got the option to draw £50k or so.

If you stick everything on a credit card, you have a month to shuffle the cash about.
Can you not flick the cash across from an account paying better interest - Nationwide / Tesco etc?

Lloyds TSB reduced my card from 5000 to 1000
I recently opened the TSB cashback credit card, the guy said that £4500 is the standard starter limit.


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