Overdrafts are a contentious issue. One mention can divide opinion faster than a spoonful of Marmite! If you regularly use your overdraft then you're not alone—58% of Plum users will fall into their overdraft at least once this month, with 6% spending the entire month in 'the red'! For most people, first contact with an overdraft will likely have been at a relatively young age—perhaps even at university. And the banks are understandably willing to tempt us in with the lure of 'free' money at this age... because they know that for a great many the experience is formative. 🤑
Fast-forward, and the overdrafts are far from free, though the behaviour patterns formed in youth may now be totally ingrained. If you ask any financial whiz, they'll tell you that the first step in any meaningful financial strategy is to clear debt—and that also includes overdrafts too. 🤔 This is because interest payments or fees alone can often nullify any attempts to break free from the cycle of borrowing. And whilst overdraft fees do tend to be a little more manageable than say, a credit card for example, the interest or charges can still mount up very quickly! 📈
Even if you're one of the few who can contain their spending within a free overdraft, breaking free of this reliance could give you the freedom you need to work towards a more meaningful, long-term goal—like growing your money for the future. 🌱
How can Plum help?
The concept of setting money aside despite being unable to repay your overdraft in-full, may initially sound like a strange suggestion... and especially so if that overdraft is not free. 😲 But bear with us! We know that for many of you, the reliance on an overdraft is the single biggest stumbling-block preventing you from implementing a more holistic financial strategy—so we designed a feature to help with this!
Once enabled (it is inactive by default), our Overdraft Savings feature allows Plum to continue making automatic savings for you, even in your overdraft. This means Plum will aim to leave you at your normal 'zero', rather than actual zero, at the end of each month. For example, if you normally reach a bank balance of -£100, then Plum will aim to make savings for you without taking you below this amount... though, now with the benefit that you also have some money tucked-away as well! 💰
This money can then be used to pay off (at least, some of) your overdraft, with a view to ultimately clearing this for good in the long-term! We will also ensure that automatic savings will never take you over your overdraft limit, and will refund any fees incurred if we do (note: does not apply to manual deposits or Round Ups). 🤝
What about unarranged overdrafts?
Although you may occasionally find it necessary to use an unarranged overdraft on your account, the higher fees associated with doing so mean that Plum will not continue to make automatic savings unless you have specified you wish to use the overdraft savings feature in advance. ✅
Ok, sounds good! How do I get started?
Overdraft Savings is just one of several features we've designed so that you can master your finances, your way! Plum can assist at each stage of your financial evolution... so once the dreaded draft's cleared you can start to think about that dream holiday, 🌄 or start planning for something a little more long-term. 🧓
If you are an existing Plum user, then you can enable Overdraft Savings by heading to the 'brain' section within the app and tapping 'overdraft savings', or by typing 'overdraft savings' in Messenger.