Saving while being overdrawn costs consumers money. The interest they have to pay is far more than the interest they receive. An experiment tested two interventions aimed at encouraging consumers to use their savings to clear any overdraft, by pre-entering a repayment amount and giving explicit information about costs. These interventions lead to better choices amongst many, although not yet all, consumers.

Why this experiment was conducted: saving while being overdrawn costs
Dutch citizens money In late 2021, the major Dutch banks were charging 9.9% interest on overdrawn amounts, while those same banks paid 0% or 0.01% interest on instant access savings account balances. Yet consumer research by the AFM shows that 11.4% of Dutch citizens with savings have a debit balance at least once every quarter. The financial loss consumers incur as a result would seem to be primarily their own responsibility. Nonetheless, facilitating an easier balance by consumers between saving and borrowing enhances overall prosperity. How can consumers be encouraged to use savings to clear debit balances?

Types of intervention: pre-entering a repayment amount and explicit information about costs
The AFM tested two potential interventions, based on the financial situation of a fictitious person, Mr Grein:
• pre-entering a repayment amount, in this case € 5,000, which would be enough to clear Mr Grein's debit balance in full
• setting out explicitly the costs and benefits, by including an additional sentence: 'With a 10% interest rate on negative balances, Mr Grein's debit balance costs him € 500 a year. With a 0.1% savings rate, a positive balance of € 5,000 yields him € 5 a year in interest.'

Method used: online scenario experiment
The experiment was conducted amongst 1,604 Dutch citizens in April 2021. This sample is representative of the Dutch population s a whole. All the respondents were asked the question: 'Mr Grein has a debit balance of € 5,000. He has € X in a savings account. He has no other savings apart from a pension, which he cannot access. How much of his € X in savings do you think Mr Grein should use to clear his € 5,000 debit balance?'

Result obtained: better choices amongst many, although not yet all, consumers
Pre-entering the maximum possible repayment amount (N=321) resulted in more than half of the respondents (52%) using the € 5,000 savings to clear the total debit balance of € 5,000, compared to 36% in the control group (N=319) for whom no amount was pre-entered. On average, the respondents repay € 3,479 when the repayment amount of € 5,000 is pre-entered, compared to € 2,917 in the control group. In the group receiving explicit information about the costs of borrowing and the benefits of saving (N=318), 43% of respondents choose to clear the total debit balance, compared to 36% in the control group. Respondents who receive additional information repay an average amount of € 3,042, compared to € 2,917 in the control group. As an additional control, a group (N=236) was presented with a self-scenario: the same situation as the control group, but with 'you' being inserted in place of 'Mr Grein'. This made no difference.

Impact: possibilities for banks to help consumers
Almost all Dutch banks send their customers alerts: a signal to notify the customer that they are now overdrawn. This may allow consumers to make a more well-considered choice of whether to save or borrow. Banks could help their customers even more, for example by offering the option of automatically clearing any negative balance in a current account using funds from a linked savings account. This would prevent customers from saving while being overdrawn without them having to take any action, and is one way for banks to prioritize their customers' interests.

Source:
https://www.binnl.nl/home+-+en/knowledge/publications/bin+nl+publications/HandlerDownloadFiles.ashx?idnv=2719979