Banks offer students interest-free overdrafts of up to £3,000

http://www.theguardian.com/money/2015/aug/09/banks-students-interest-free-overdraft-borrowing

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Students who get the A-level results they are after on Thursday will be able to choose from a raft of bank accounts that offer interest-free overdrafts of up to £3,000 to help fund their studies.

All the major high street banks have released their student offerings for the upcoming academic year ahead of the scramble for university places.

However, gone are the days when banks would effectively bribe students for their business with electronic gadgets. Back in 2001, Abbey National (now Santander) was seducing students with a Sony CD player and £40 cash. The following year Natwest was offering a “student starter kit” of a kettle, toaster and radio alarm clock, and in 2005 HSBC garnered a wave of publicity after throwing in a free MP3 player with its account.

This year, the best freebies are the four-year young person’s railcard from Santander, the equivalent National Express card from NatWest/RBS and a £60 Amazon gift voucher from HSBC.

David Black, director of DJB Research, says there is little point in looking at freebies and students should focus on the interest-free overdraft.

“But do bear in mind that you may not necessarily be offered the maximum overdraft for the maximum amount cited,” he says.

In years one to four, Halifax and HSBC offer the biggest interest-free overdrafts at £3,000 every year. However, students who accidentally borrow more than this will be penalised heavily by Halifax, which charges an interest rate of 24.2% on unauthorised borrowing.

Barclays offers £1,500 interest-free borrowing in year one and £2,000 thereafter, while NatWest/RBS offers £2,000 every year. Lloyds allows £1,500 in the first two years and £2,000 thereafter, while TSB offers £1,500 every year. Co-operative Bank has a more unusual offering of £1,400 interest-free borrowing in year one, £1,700 in year two and £2,000 in year three.

Andrew Hagger of Moneycomms.co.uk believes the major financial benefit of any student account is the ability to borrow as much as possible interest-free.

“If, for example, you borrowed £3,000 via an overdraft you would pay £195 more in year one with Lloyds compared with Halifax, and £700 more over four years,” he says.

Students who want to borrow more will be able to take out a credit card (subject to a credit check) with some banks. NatWest/RBS offers a card with a credit limit of up to £500 with interest charged at 18.9%. Halifax will offer £1,000 at 19.9% and Lloyds and TSB offer a lower £500, also at 19.9%.

For students lucky enough to have a bit of surplus cash knocking around, some of the banks pay generous credit interest. TSB offers a whopping 5% interest but only on balances up to £500, while Santander will pay 1% on balances between £100 and £200, 2% on balances between £200 and £300, and 3% for balances between £300 and £2,000.