Students Should Always Go With the Highest FREE Overdraft Accounts
September 2005
There's only one simple rule when it comes to getting the best Student Bank Account, and that's generally stay well clear of any bank that tries to temp students with free gifts like an iPod, and go for the one that offers the best interest free overdraft.
Some Quick Student Money Facts
- An average student will graduate with debts of between £12,500 - £20,000
- A 3-year course will cost nearly £29,000
- 75% of students surveyed said 'debt' was their most worrying concern
- Student loans start at around £3,300 for those living at home, up to £4,200 for those living away from home and a maximum of £5,175 for those at study in London (see useful links below for more help on student loans)
Debt for most students is going to be a way of life and this is why it's so critical to get the best deal possible. The good news though is that much of this debt can be financed interest free, but only if you go with the right bank.
How To Sort Out The Best Student Deal
Simple, go with the account that offers the maximum overdraft level.
- Right now The Halifax is the clear winner with students allowed to borrow the following -
- £1,750 interest free in year 1
- Rising to £1,900 in year 2, and
- Rising to a maximum of £2,100 in year 3, 4 and 5
But the Halifax account does have a downside in that after graduation the interest free loan only lasts for one year whereas other student accounts such as Lloyds which will converts a student account into a graduate account. Lloyds then gives holders of this account up to 3 years to repay the overdraft which is a nice tough.
One way however to get around the Halifax problem is to bank with them as a student and then once graduated switch your account to a competitor such as Lloyds. This is because Lloyds offer another 3 years interest free in which to repay the overdraft.
And don't think this kind of practice is unethical because all banks are in the market to attract business and chances are if you move your account to them you'll stay a client over many years.
Once caveat though, don't go racking up lots of other debts while a student and trash your credit rating by getting defaults or CCJs. If that's the case you'll most probably struggle to get any but the most simple bank account upon graduation. (see below)
Steer Clear Of Credit Cards
Unless you're very responsible with money and especially credit, steer well clear of any credit cards that are promoted. This is a fast way to get yourself into real financial trouble.
Potential Credit Reference Problems
There are two serious factors at work with excessive debts -
- The obvious one, too much debt is not good and can often financially strangle people for many years
- But as important is the opportunity cost of debt problems via the effect on ones credit rating
Basically if you struggle to make repayments on any debt this information will get reported to the credit agencies such as Experian. A few late payments here and there are not a problem but anything more including defaults and CCJs will haunt you for many years. What will happen is twofold, firstly you may not be able to get credit on anything including a mortgage, and secondly if you are granted credit it will be at much higher interest rates.
So if you were to default on say a £500 loan and are granted a mortgage 4-5 years in the future the higher interest rate on the mortgage repayments could add up to thousands of extra pounds.
Think about this point because many miss it and don't realise the future financial damage that can occur.
Summary
All the main banks offers student accounts so do an hour or so of research before deciding. Don't just signup with the first one you see because that could be a mistake that costs you over the long run, for example you signup with a bank that offers a miserly overdraft limit.
And when it comes to free gifts or offers, don't always knock them but rather take them as just another factor in deciding whether the overall account is worth doing business with. Finally for those students that are well off still take student loans out and rack up the maximum overdraft possible, then just place this money in a high paying interest account to earn so called free money.
See Also
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