A lesson in banking for freshers

The A-level results are in and thousands of students are rushing to stock up on supplies as they prepare to head off to university. But there’s another key piece of preparation that soon-to-be undergraduates need help with — sorting out their finances
The A-level results are in and thousands of students are rushing to stock up on duvets and kettles, textbooks and tea bags as they prepare to head off to university.

But there’s another key piece of preparation that soon-to-be undergraduates need help with — sorting out their finances.

Leave the choice of who to bank with until Freshers’ Week and students might be rushed into making a decision that could cost them dearly in wasted interest payments. Far better to carefully pick now than opt for the bank offering the prettiest stress ball nearer the time.

And for cash-strapped students, the most important part of a bank account — and the one that will make the difference between endless end-of-term meals of baked beans and nights out all term long — will be the interest-free overdraft.

Top of the class this year are Halifax and HSBC, which are both offering up to £3,000 interest-free plus fee-free borrowing from year one compared with £1,000 at NatWest and Santander and £1,500 at Lloyds TSB, for example. Barclays is offering £2,000 interest free from year one.

If you’re a parent and feel worried about your little spend-loving darlings having access to such a high first-year limit, prod them towards the tiered system, with the level of interest-free borrowing increasing every year, at banks including NatWest (£1,000 interest-free in year one, broken down into up to £500 in the first four months, rising to £750 in months five to eight, then up to £1,000 for the last three months. In year two, this rises to £1,250, to £1,500 in year three, £1,750 in year four and £2,000 in year five).

Teach your kids about the importance of those overdraft limits, though. Where banks are willing to give students higher overdrafts beyond the interest-free limit, the rates are often hefty, at eight or nine per cent. It’s worse where banks have no further authorised overdraft facilities for students, because then they face big fees.

Santander, for instance, charges a flat fee of £5 a day, capped at 10 days a month, for being overdrawn without asking permission – which could add up to £600 a year.

Remember to look at fees and charges rather than freebies. Santander is offering £50 cashback to students who open or switch to its Student Current Account before 31 August - but they have to be existing customers. The free four-year 16-25 Railcard that NatWest used to offer all students is now also only available to existing current account customers.

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