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I have a 0% interest overdraft that's currently up to a £1200 limit, but I can request an increase. Would it be a good idea to transfer up to the limit (minus what I'd float in the account to make sure I didn't go over) to a savings account where the money is actually accumulating interest?

So say I moved money so I was always £1000 overdrawn to a savings account where I could access the £1000 for when I needed to pay off the overdraft I could do it quickly. Surely this means that the £1000 that would be otherwise doing nothing is earning interest, at no detriment to me, provided that I could pay off the overdraft if something cropped up?

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Technically, yes, you can do this. It's a form of arbitrage: you're taking advantage of a small price difference between two markets.

But is it worth the hassle of keeping on top of the overdraft and making sure you don't incur any accidental penalties or fees? Interest rates are super low, and floating £1000 or £2000, you're only going to generate £10-20 per year in a basic savings account.

  • +1. Banks can afford to offer 0% overdraft loans precisely because many people do forget and wind up having to pay for them. Unless you are CERTAIN that you'll have both the awareness and the cash-on-hand to pay off the loan before the discount period expires, you may be entrapping yourself into paying more than you can save. If you must do it, I recommend planning to pay off the loan several months before it comes due, to avoid the last-minute "oops, I forgot" that wipes out your gains. I've done this with 0% store credit... rarely, and very, very carefully. – keshlam Dec 3 '14 at 4:27

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