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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

Savings vs overdraft

26 replies

lucie8881 · 03/02/2020 23:34

Sorry this is a bit of a dull AIBU, warning in advance.

The background detail - I work full-time in the NHS, DH had his employment terminated just over a year ago due to ill health (anxiety and depression) and has been unable to work since. He receives standard rate PIP and a little over £100 a month in universal credit, these plus my salary go into a joint account. We have 4 DC, aged 14, 12, 10 and 2 (3 from my first marriage and 1 together).

The disagreement we’re having is in regard to finances. DH has a bank account with an overdraft of £700, it’s currently £450 overdrawn. This has been over the last few months, in particular the run up to Christmas. He gets worked up over financial matters and struggles with the thought of being in debt. Early last year I opened an ISA to try and get some savings behind us (after DH lost his job I thought it would be prudent), and pay £50 into it on paydays.

The ISA now has £450 in it which my DH wants to use to clear the overdraft. I’m really against the idea, I’d rather leave the savings alone. We could pay off half the overdraft the end of feb, the other half end of March. For me that’s preferable, just pace ourselves a bit. DH thinks I’m being illogical (his words) as he’ll accrue further charges that could be avoided by paying the overdraft now.

AIBU by refusing to use savings to pay off overdraft? What would others do?

OP posts:

TheThingWithFeathers · 03/02/2020 23:39

I'm with you, I wouldn't use savings to pay off an overdraft. Even if you topped the savings back up again over the next couple of months, you'd lose out on interest - I know it would be hardly anything, but it's the principle.

sonypony · 03/02/2020 23:45

Well the best financial decision is to pay off the overdraft and not get charged vs the non existent interest on the savings.

Maybe you could compromise. Use half the savings to pay off half now, then pay the other half off at the end of the month. At the end of March when you could have been paying off the other half plus fees you can put that into savings and the fees you didn't pay will be better than the interest you would have accrued.

Lockheart · 03/02/2020 23:55

Weigh up how much the overdraft is costing you against how much the savings are earning you. If you're paying more in bank fees than you're earning in interest, pay off the debt. If the debt isn't costing you anything, leave the money in savings.

okiedokieme · 03/02/2020 23:57

I would pay off the overdraft today and replenish the savings in feb and March

jimmyhill · 04/02/2020 00:01

Even if you topped the savings back up again over the next couple of months, you'd lose out on interest

This is loony advice ... there is absolutely no way that the interest you earn on your savings comes anywhere near what you pay for the overdraft

Christmadtree · 04/02/2020 00:01

Have you seen the new overdraft charges coming in? 40% interest which is huge compared to any savings interest.

If you have joint money then pay off the overdraft, always pay off your most expensive debts first is the general rule and overdrafts are more expensive than credit cards etc now. but if it's your money and he's got himself into debt then I can understand your reluctance.

Snowmonster · 04/02/2020 00:01

If the overdraft charges/rate is 40% as some banks are charging now I would def pay off the overdraft.

Alsohuman · 04/02/2020 00:05

Pay off the overdraft, then replenish the savings.

MissConductUS · 04/02/2020 00:09

Pay the overdraft. The interest charges will snowball.

safariboot · 04/02/2020 00:14

If you're treating the finances as joint then pay off the overdraft, it's a no-brainer.

If you're regarding the savings as yours and the debt as his then you may feel it's unfair that you're paying off his debt. But unless he's incurred the debt through unreasonable behaviour I think that attitude is rather harsh.

ChazsBrilliantAttitude · 04/02/2020 00:20

The OD is probably costing multiples of what the savings are earning.
See if you can get the bank to waive the OD charges on the grounds of his ill health. If not pay it off.

pauapaua · 04/02/2020 00:20

My bank have an overdraft cost calculator for now and after aoril, if yours do that might help you to work it out,

ThePants999 · 04/02/2020 00:26

This isn't even a decision. You can earn a fiver a year in savings interest while paying a hundred and fifty quid a year in overdraft interest, or neither. Why delay? What are you gaining by "pacing yourselves"?

Graphista · 04/02/2020 00:27

YABU.

The overdraft + fees will be costing more than you’re getting in interest on the savings.

You’re a family you need to budget and manage your finances as a whole.

And certainly get the overdraft paid off before April when the interest is set to rocket:

https://www.google.co.uk/amp/s/www.bbc.com/news/amp/business-51329091

Original poster

lucie8881 · 04/02/2020 00:35

I didn't realise about the hike in fees, that definitely puts a different spin on things.

I also didn't consider what has been suggested by PP, doing it in reverse (paying off overdraft, replenishing savings over next 2 months). I've been so fixated on protecting the savings I've been blind to what actually makes more financial sense.

In essence it's a joint debt and joint savings. I'll do as advised and get rid of the overdraft first. Thanks!

OP posts:

HeddaGarbled · 04/02/2020 00:36

In purely financial terms, the overdraft is costing more than the savings are earning so you should pay off the overdraft.

However ........ if he’s going to keep running up overdrafts that you keep paying off from your savings, that’s a problem.

HeronLanyon · 04/02/2020 00:48

Bloody hell - op posts for advice (not dull when so many don’t know about overdraft charge changes coming soon) - gets calm clear advice - takes that advice and thanks thread for advice. All in less than one page.

HeronLanyon · 04/02/2020 00:48

Good luck op.

notangelinajolie · 04/02/2020 01:01

Pay of the overdraft.

charlieschocolate · 04/02/2020 01:07

@heronlanyon Just what I was thinking. Nothing to add now

PyongyangKipperbang · 04/02/2020 01:13

Yeah I agree that getting rid of the overdraft (and make sure he cancels it so it cant get run up again) makes more financial sense, and bunging in the savings what you would have paid off the overdraft over the next 2 months. Do it ASAP before you get stung for the next months charges too as they usually charge by the day.

Martin Lewis recommends clearing debt before savings, because the cost of one completely outweighs the interest paid on the other.

LangSpartacusCleg · 04/02/2020 01:28

Pay off the overdraft (current and future fees are Significantly more than interest in savings)
Terminate the overdraft facility. This is crucial. If you have it, it is too easy to fall into using again. Don’t make that mistake. Your husband has to live within his/your means.
Replenish savings. I understand wanting to have a savings cushion. It is to protect you from financial trouble. The overdraft is financial trouble. Use the cushion. Then make another one.

RainbowMum11 · 04/02/2020 01:56

If the overdraft is costing more in interest & charges than you are earning on your savings, it's surely better to repay to debt, cancel the overdraft facility and keep paying in to the savings.

yellowallpaper · 04/02/2020 02:06

Pay the overdraft. Interest is massive now even agreed ones. Just make sure it isn't used again.

eeyore228 · 04/02/2020 02:12

I would pay off the overdraft. They are hiking up the fees on them a lot in March/April time. The interest you will save on the overdraft vs what you'll make on it in the ISA is massive.

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