Students warned over current accounts

28/07/2009

The student accounts currently on the market vary widely in value for money.

This is the view taken by financial website Moneyfacts.co.uk, which released a wide-ranging market survey on the issue yesterday.

The site pointed out that some student accounts are best suited for people who know that they will need to use their overdraft, with top accounts offering an interest-free limit of up to £3,000.

Meanwhile, customers who are likely to remain in credit stand to benefit from top accounts which offer annual credit interest of 1.98 per cent.

However, for other accounts, both credit interest rates and interest-free overdraft limits can stand at zero.

Low current account switching rates also mean that many people stick with the same provider after they graduate, making choosing the best student account even more important over the long term.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, commented: "As most students spend their university life living in their overdraft, it is worth finding an account that offers a good level interest free.

"If you do get into trouble with your finances, don't bury your head in the sand. Unauthorised borrowing can be very expensive and soon mount up. If you tackle any issue head on, the bank will be more lenient and willing to help."

Kevin Still, EuroDebt director, added: "The length of time with your bank used to have a bearing on your credit score and developing a personal relationship with your local banking representatives used also to be important. Times have changed and you are more likely to get a better deal as a new client than an existing one. Personal banking on the high street seems to disappeared with the advent of overseas call centres and the centralisation of decision making.

"Students should take advantage of the interest free overdraft facilities for their University years and the period afterwards when the interest free period applies. Care should be taken when planning that offers that allow increments to the overdraft facility over time are stuck to by the bank, as the credit crunch has seen a number of banks tighten their belts and withdraw overdraft extension facilities that may have formed part of the budgeting plan, especially if student loans are slow in being processed - which seems a reasonably common occurrence.

"The real challenge normally starts after leaving University when repayments start falling due on student borrowing. There may need to be a period of consolidation when disposable income is tight. Use of prepaid current accounts with transparent fees, no charges for failed direct debits and no overdraft initially may represent good budgeting tools. EuroDebt has launched a prepaid current account that is available to all UK residents involving no credit checks for people that are struggling financially. Many students leaving University may fit into this category for several years after graduation."

Tags; Debt Management and Banking, Recent Graduate Debt,

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