Wednesday, 29 August 2012

Barclays Personal Reserve vs

Until recently I had a Barclays Personal Reserve of £150 on my current account. I kept on straying into it, costing me a lot of money, so I decided to ditch it a month or so ago as bouncing payments was cheaper. I also tried claiming some of the fees back, to no avail.

This got to me to wondering whether or not I would have been better served borrowing from a short term loans company like have a terrifying representative APR of £4214, which on the face of it makes steering clear a no-brainer. Undeterred, however, I sat down and did some calculations, as only a Maths/Stats fanatic would do.

First I looked at what I'd pay if I borrowed £150 for 1 year at's representative APR of 4214%. This came to the enormous sum of  £6,321 in interest. This was, of course unrealistic, as I wouldn't be paying the hugely compounded rate but would in fact be paying the true annual rate of interest of 360%. Over a year that would cost me £540 in interest, ignoring fees. A hefty sum for such a small amount of money.

Then I decided to look at the Barclays Personal Reserve. This helpful facility gives you an extra £150 on your overdraft, so long as you are happy to pay £22 for every 5 working days that you access it. Firstly, I worked out how many periods of 5 working days there would be in a 52 week year. This total, 50.4, was then multiplied by £22. This gave me a whopping total cost for the year of £1,108, more than double the cost of's true interest rate. Considering I had always assumed/hoped that Barclays was a responsible lender, this figure kind of shocked me.

Still in shock, I decided to drill down to monthly costs using the fun sliders on the website, as I felt this would be more accurate. The sliders told me that, over a 30 day period, borrowing £150 from would cost me £51 in interest and fees. By comparison, and based upon my calculation that there are an average of 21 working days in a month, using my reserve would have cost me at least £88. This meant that Barclays would have cost me an extra £37 per month compared with Having gone over the figures in brief, therefore, I was forced to conclude that I would have been better off borrowing with than with the bank I have been loyal to for 14 years.

Of course, there is a major caveat to the figures for Barclays. I estimate, on average, that most people would pay no more than 3 reserve usage fees in a month if their bills weren't all coming out on pay day, which brings the extra cost down to a much less damning £15 per month. It is also likely that there would be fluctuations in usage across months. Given, however, that you pay a flat fee of £22 for using even £1 of the reserve for 1 day, compared with £7.42 for borrowing £1 from for 30 days, I think this is a fair reflection on the relative merits of the 2 products.

In conclusion, therefore, I have to say that is probably a better bet for dealing with short-term money issues than the Barclays Personal Reserve. Of course, given that borrowed money has to be paid back with fees and interest, neither option presents a great prospect if you are struggling to make ends meet. I'd therefore recommend overcoming any pride or embarrassment you may feel over being short £150 and either speak to friends and family or speak to the companies you pay your bills too. Something I must admit I should have done more quickly upon occasion.


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