Graduates warned to review their student bank accounts
If you're enjoying the summer as a new graduate, spare a thought for your bank account. Chances are you will have enjoyed a big fat interest-free overdraft courtesy of your student account while you were studying but now that uni's over, you need to check what will happen to it.
With estimates suggesting 350,000 students will be graduating this summer, competition is gearing up among the banks to convert them into long-standing current account customers. And many will hope switching them on to their graduate account equivalents to their old student accounts will do the trick.
David Black from market research company Consumer Intelligence warned new graduates to be on the lookout for the details about these new accounts to make sure "deals on offer are right for them".
He said the most important thing to look for is the account with the highest authorised interest-free overdraft on offer. This will allow them "to ease their way into the world of work but to focus on paying off the overdraft at the end of term".
He added: "You don't have to have your graduate account with the same bank as you had your student account and it is important to shop around if possible. That applies to people who have graduated in the past two years as banks really want graduates' business so there are plenty of deals available."
Consumer Intelligence's research found the highest interest-free overdraft available without a fee is from Santander's 123 Graduate Current Account, which is up to £2,000 over three years.
The Barclays Graduate Additions interest-free overdraft is bigger at up to £3,000 in year one, before falling to £2,000 in year two but it comes with a £7 monthly charge. It does come with mobile phone insurance and RAC cover, however.
Behind the Santander no-fee graduate account are the Lloyds Bank Graduate Bank Account and TSB Graduate Bank Account, which both starts at £2,000 interest-free in year one falling to £1,500 in year two and £1,000 in year three.
Meanwhile, the NatWest and RBS Graduate Accounts offer up to £2,000 interest-free overdraft in year one and £1,000 in year.
Special low-rate personal loan deals are also available for graduates to help repay student account overdrafts.
"Anyone needing a loan should take a look at HSBC which offers loans of between £5,000 and £25,000 at 3.9% EAR subject to status but you need to have its current account which offers £1,500 interest-free overdraft for year one and £1,000 for year two before switching to 19.9%. However you can apply for it up to five years after graduation," said David Black.
Lloyds and TSB both have graduate loans for £1,000 to £10,000 with rates depending on circumstances.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.