With summer graduation ceremonies now taking place across the country, thousands of twentysomethings are contemplating their post-university futures. One of the many things they will have to get to grips with is changes to their banking. We look at what this entails.
Do I have to change account?
Ultimately, yes. Unfortunately, the joys of the interest-free student overdraft will come to an end, and you can’t stay on your student account without a current letter of attendance from a higher learning institution.
So what happens?
In stark contrast to the scramble of high street banks attempting to seduce freshers with the promise of free railcards and gift vouchers, the transition to a graduate account is usually far more sedate. You will probably get a letter from your bank stating when your student account will be automatically converted into a graduate one. These accounts are better than conventional accounts, but not as good as student accounts. For example, NatWest’s graduate account allows an interest-free overdraft of up to £2,000 in the first year after university, but it reduces each year after.
Which bank provides the best deal for new graduates?
Both Save the Student and MoneySavingExpert.com highlight Santander’s 123 Graduate current account, which comes with an interest-free and fee-free arranged overdraft of up to £2,000 for three years.
With the Lloyds Bank Graduate Account you can apply for a tiered interest- and fee-free arranged overdraft of up to £2,000 in your first year after graduating, £1,500 in your second year, and £1,000 in your third year.
Do I need to stay with the bank that I opened my student account with?
MoneySavingExpert says “loyalty can cost”, but adds: “Banks love fresh grads and offer exclusive deals, such as 0% overdrafts for up to three years.” Save the Student advises: “It’s pretty easy to ditch your current bank and switch to a new one.”
Are there any common problems to look out for?
You’ll notice it invariably says “up to” on those overdraft offers – ie, the actual amount you are offered may end up being different (by which we mean lower). The amount you are offered will depend on your financial circumstances and your credit rating. Credit ratings are an unpleasant surprise to many students, who have often been blissfully unaware of them during their years at university/college. Correctly managing essential debt throughout your student experience will help you get a better credit score. Conversely, having no credit history can be just as troublesome as having a poor rating: without a history of spending and repayments, a bank may be less willing to loan you money.
Grace, a recent graduate of the University of Edinburgh, found this when attempting to move from her student account to a graduate account with another bank. “I’ve never had any sort of loan or overdraft before, which I thought would count as a good thing – but I was berated for having a poor credit score,” she says. “They assumed that as a recent graduate I wouldn’t have a job, and ended up recommending an adult account I would have to pay for if I couldn’t maintain a monthly wage, with a vague idea of transferring me to a graduate account later.”
What about graduate loans?
These vary in quality, but some are tempting – so long as you have a good credit record. HSBC offers £5,000-£25,000 at an interest rate starting at just 3.3%, but only to its existing customers. The money has to be repaid over a maximum of between five and eight years, depending on the size of the loan. This compares to the rather less tempting 11.9% charged by Lloyds Bank on its graduate deal for loans up to £10,000.
Save the Student says graduate loans should be treated with caution as they are different to student finance and often require you to start making repayments almost immediately: “Unless you’ve got a guaranteed income, this could be more stress than it’s worth.”
What happens afterwards?
After two or three years, dependent on the bank, your graduate account will be converted into a normal current account – with all the interest and fees these entail. Hopefully, by this point you should have been able to reduce your debt and pay off most of your overdraft so as to avoid hefty costs at the end of your time with a graduate account.
