New graduates often lose £100s per year, just by sticking with the same student bank account. Special graduate accounts offer to extend interest-free overdrafts for up to three years after higher education, so picking the best can save you loads. If you graduated in the last three years, check now, then ditch and switch!
Don't be loyalLoyalty is a consumer disease
Sadly most graduates suffer from the consumer disease of loyalty and unnecessarily stick with their existing bank, without realising they're perfectly eligible to ditch it, switch and get a much more profitable deal.
Graduate accounts are day-to-day current accounts, which last up to three years, specifically for those finishing higher education. The terms offered are usually a substantial improvement on normal bank accounts; therefore used correctly they effectively mean more cash in your pocket.
Even if you've already got a graduate account you can switch, and it's often worth doing. While with some the special terms only last a year, others extend them for three years post-university, and let customers open one until that point. This varies from bank to bank; find out Who counts as a Graduate?
Don't let them buy you for life.
Bizarrely, the top graduate account deals come from the much berated big high street banks (just like the top Student Accounts).
The reason's simple; if banks capture lucrative young customers now, they know most are (sadly) loyal for much of their life. This means years of profitable cross-selling; flogging mortgages and credit cards that don't touch the best buy tables and shunting customers into dismal normal current accounts.
Therefore while it's important to choose the right graduate account, don't let their short term bribe buy you for life. Grab the free overdraft, then after the special graduate deal ends, ditch and switch to the best normal current account (see the Best Bank Accounts article).
Don't switch if you failed your course.
The exception to the switching rule is for those who failed to complete or pass a course. While your current bank often automatically transfers you to a graduate account on the course's set completion date (regardless of pass or fail), a new bank will want proof of graduation.
Choosing the top graduate account
Gimmicks and intro bonuses shouldn't form the primary part of your decision as the gain is small compared to the main financials. Instead...
Focus on the banks that'll give you the biggest and longest 0% overdraft facility
This golden rule applies whether you still owe debts accrued while you were studying or not.
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Those who have debts (excluding student loans).
Look for the biggest and longest lasting interest free overdraft. It's the cheapest borrowing you'll ever get, and no interest means any spare cash you have can go towards repaying the actual debts.
Student loan debts (i.e. the official loans from the Student Loans Company), are excluded as they're very cheap, long term debt, that generally shouldn't be shifted or repaid any more quickly than necessary. If you only have SLC debts, then for this consider yourself debt free.
Read the full Should I Repay My Student Loan? guide for a more detailed explanation. -
Those who are debt free (or nearly are).
Even graduates who are in-credit should choose the biggest and longest lasting interest free overdraft because, using a technique I call 'deficit banking', there's money to be made.
Once opened, keep your 0% overdraft at its top limit, as it costs nothing, and put the free cash you into the top-paying, instant access savings (see Top Savings and Cash ISA guides). When your overdraft limit drops, move the necessary cash back to your current account (use the Tart Alert to remind you).
As a result, you're earning interest on money the bank's lent you for free, giving potential profit of around £150. However, this isn't an excuse for spending or borrowing more. If you're not financially disciplined, DON'T TRY IT.
Don't fall for the 'pay a fee and you'll be even better off' line.
Many banks offer 'special' accounts for graduates willing to pay a fee of around £5-£10 month; do that and you may get a bigger 0% limit. Yet inevitably the extra cost just isn't worth it; fee paying accounts rarely add up. So, simply, don't pay; just get the best fees-free account available.
The Top Graduate Accounts for 2009/10
To be a winner here, banks must offer the biggest 0% overdrafts for the longest period. Two are virtually tied when it comes to the top overall graduate account; the best for you depends on how you'd operate it.
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Lloyds TSB.
Biggest guaranteed limits, but expensive if you borrow more.The biggest average overdraft on offer's with Lloyds TSB: £2,000 in year one, £1,500 year two and £1,000 year three. Here, if you're accepted (and most are), you'll be guaranteed to get these limits to their fullest each year (i.e. they are definite, not maximum possibles).
However, if you need to borrow more than the limit, Lloyds charges an expensive 17%, while the in-credit interest rate is a paltry 0.1%.
Quick Stats. 0% Overdraft: Yr 1 £2,000, Yr 2 £1,500, Yr 3 £1,000 Authorised O/d rate: 16.8% EAR. Unauthorised O/d rate: 16.8% EAR (Plus other charges). In-credit interest: 0.1% AER -
Royal Bank of Scotland.
Pays in-credit interest and decent over-limit borrowing rates.The overdraft available with the RBS matches Lloyds: £2,000 in year one, £1,500 year two and £1,000 year three. However, here they are approved on a case-by-case basis so it's possible that you may not get the maximum.
However, RBS is slightly nicer for graduates who aren't solely fixated on the biggest overdraft. Borrow over your limit and any agreed lending is at a very reasonable 10% APR. Plus it pays in-credit interest rate of 1.02%, so if you're often not overdrawn, this wins. Although if this is the case, you should consider the deficit banking technique. Quick Stats. 0% Overdraft: Yr 1 £2,000, Yr 2 £1,500, Yr 3 £1,000 Authorised O/d rate: 9.9% EAR. Unauthorised O/d rate: 29.84% EAR (Plus other charges). In-credit interest: 1.02% AER
Don't switch yet if you've a Halifax/Bank of Scotland Student Account.
Whilst technically not a graduate account, some existing Halifax/Bank Of Scotland (HBOS) student accounts holders will be given a £3,000 interest free overdraft for the first year of graduation as an extension of their student account.
Therefore if you're with HBOS and already have an overdraft bigger than £2,000, stick with it for this year, then switch to the best graduate account next year.
There is always a chance such good new customer limits won't be around by then, but graduate account deals have been consistently improving with most banks, so that's unlikely.
Nine high-street banks offer graduate accounts, although three will only provide one to those who had a student account with it. Each bank has varying overdraft limits and term & conditions.
2009/10 Graduate Account Details
Name |
Graduate Account |
Higher Education Account |
No formal graduate account, but student accounts continue for the first year after graduation |
Eligibility Criteria |
Has graduated from a Higher Education course up to 3 years ago and are in employment |
Must have completed a full time higher education course up to 3 years ago and be a permanent UK resident. |
Must have held its student account at time of graduation |
Sign Up/Other Incentives (selected) |
N/A |
N/A |
N/A |
Maximum Interest Free Overdraft Limits |
|||
Year 1 |
£2,000 |
£1,500 |
£2,000 |
Year 2 |
£1,000 |
£1,000 |
N/A |
Year 3 |
£500 |
N/A |
N/A |
Are these interest free overdraft rates guaranteed or are they done on a case by case basis? If case by case what proportion of people get the maximum? |
Providing the customer is accepted for the account they will qualify for all overdraft tiers. |
Free on first £200, given at account opening. Over £200, further interest-free overdrafts available on request depending on year of graduation (subject to application and status) |
At the bank's discretion |
Agreed Overdrafts beyond the 0% limit |
9.9% |
19.3% |
9.9% |
Unauthorised overdraft rate & fees |
28.7% Instant overdraft fees: From £0 to £9.99 will cost £5, from £10 to £19.99 will cost £15, from £20 to £29.99 will cost £25, over £30 will cost £35 Instant overdraft monthly fee also applies - £25 each month the service is used |
If you go past your overdraft, you'll be charged a ˜Personal Reserve' fee of £22 every five working days, until crediting the account to clear the reserve. You'll be advised of your personal reserve limit once an application is successful. Any payments debited from the personal reserve will be honoured. |
15.9%, unpaid items £30 |
What is the in-credit interest? |
0.1% |
0.1% (0% from 21 September 2009) |
0% |
Transfers accepted at graduation? |
Yes, they can close their old account and open a new account with Abbey |
Yes |
No, you must have held its student account to be eligible |
What account does it revert to afterwards? |
Abbey Current Account |
Barclays Bank Account |
Co-operative Current Account |
Is a graduate loan available? If so, at what rate? How long after graduation is it available? Must customers have a graduate account with you to get it? |
Yes; 7.5% typical APR, available up to 3 years after graduation. Must have its graduate account (£10,000 maximum). |
Yes; 9.9% typical APR, available up to 2 years after graduation for a maximum term of 7 years, depending on size of loan (£10,000 maximum). |
No |
Is there anything in your terms and conditions to stop them opening a graduate account with another bank too? |
No |
No |
No |
2009/10 Graduate Account Details
Name |
No formal graduate account, but student accounts continue for the first year after graduation |
HSBC Graduate Service |
Graduate Account |
Eligibility Criteria |
You must have had its student account at the time of graduation to qualify for this |
HSBC will need to see a graduation certificate |
• Permanent UK resident |
Sign Up/Other Incentives (selected) |
N/A |
Free online credit report every year. |
N/A |
Maximum Interest Free Overdraft Limits |
|||
Year 1 |
Up to £3,000 |
£1,500 |
£2,000 |
Year 2 |
N/A |
£1,000 |
£1,500 |
Year 3 |
N/A |
N/A |
£1,000 |
Are these interest free overdraft rates guaranteed or are they done on a case by case basis? If case by case what proportion of people get the maximum? |
No, you are not guaranteed to get the maximum, amount of overdraft you get depends on your personal circumstances and whether you make regular payments into the account.% on maximum not disclosed |
Guaranteed |
Overdraft is subject to status and application. Any graduate who is eligible for the Graduate account will be eligible for the interest-free overdraft relevant to the year after graduation they are in (i.e. year one, £2,000; year two, £1,500). |
Agreed Overdrafts beyond the 0% limit |
7.2% |
19.9% |
16.8% |
Unauthorised overdraft rate & fees |
24.2% with a £28 fee per month. Paid item charge of £20 (max one per day), failed item charge £20 (max one per day) |
19.9%
|
16.8% £20 returned item fee (max. 3 per day) |
What is the in-credit interest? |
0.1% |
0% |
0.1% |
Transfers accepted at graduation? |
No, you must have held a Halifax or HBOS student account to be eligible |
Yes |
Yes |
What account does it revert to afterwards? |
Choice of current accounts |
Current Account Advance |
Lloyds TSB Classic Account |
Is a graduate loan available? If so at what rate? How long after graduation is it available? Must customers have a graduate account with you to get it? |
No |
Yes; 8.7% typical APR, up to £25,000, available up to five years after graduation. |
Yes; 9.9% typical APR, available while you have graduate account, between £1,000 and £10,000. |
Is there anything in your terms and conditions to stop them opening a graduate account with another bank too? |
No |
No |
No |
2009/10 Graduate Account Details
Name |
Graduate Account |
Graduate Royalties |
No formal graduate account, but student accounts continue for the first year after graduation |
Eligibility Criteria |
Graduated from a full-time course of higher education (lasting two years or more) up to 3 years ago. |
Graduated from a full-time course of higher education (lasting two years or more) up to 3 years ago. |
Must have held its student account at graduation |
Sign Up/Other Incentives (selected) |
N/A |
N/A |
N/A |
Maximum Interest Free Overdraft Limits |
|||
Year 1 |
£2,000 |
£2,000 |
£2,000 |
Year 2 |
£1,000 |
£1,500 |
N/A |
Year 3 |
£500 |
£1,000 |
N/A |
Are these interest free overdraft rates guaranteed or are they done on a case by case basis? If case by case what proportion of people get the maximum? |
Assessed on a case by case basis – the majority of customers will qualify for the overdraft as long as the account has been used in the appropriate way |
Assessed on a case by case basis – the majority of customers will qualify for the overdraft as long as the account has been used in the appropriate way |
The overdraft is at the bank's discretion |
Agreed Overdrafts beyond the 0% limit |
17.81% |
9.9% |
9.9% |
Unauthorised overdraft rate & fees (ALWAYS AVOID – talk to the bank first) |
17.81%
|
29.84% A monthly flat fee of £10 is payable, you will also be charged one of the following: £30 Paid Referral |
15.9%, unpaid items £30 |
What is the in-credit interest? |
0.1% |
1.02% |
0.12% |
Transfers accepted at graduation? |
Yes |
Yes |
No, you must have held its student account |
What account does it revert to afterwards? |
Standard Interest Paying Current Account |
Current Plus, or one of Private Banking accounts if eligible |
Smile Current Account |
Is a graduate loan available? If so at what rate? How long after graduation is it available? Must customers have a graduate account with you to get it? |
Yes. £1,000 - £4,999 – 12.9% APR Available up to three years after graduation. Must have its graduate account |
Yes; 9.4% typical APR, from £1,000-£15,000, available up to three years after graduation. Must have its graduate account |
No |
Is there anything in your terms and conditions to stop them opening a graduate account with another bank too? |
Yes – you must use the graduate account as your main bank account |
Yes – you must use the graduate account as your main bank account |
No |
With the Co-Op bank, a graduate with an overdraft averaging £1,950 then £1,450 and £550 for the three years after graduation would pay £390 in interest.
Yet with both RBS and Lloyds TSB you wouldn't pay any interest at all, thus leaving you £200 better off.
A degree of financial certainty
| Accounts | Interest-free overdraft |
Authorised overdraft rate |
Overdraft cost over 3 yrs* |
Saving |
||
Year 1 |
Year 2 |
Year 3 |
||||
| Co-Op | £2,000 |
£0 |
£0 |
9.9% |
£200 |
- |
| RBS Graduate | £2,000 |
£1,500 |
£1,000 |
9.9% |
£0 |
£200 |
(Overdraft averaging £1,950 year 1, £1,450 year 2, £550 year 3*) * assumes maximum amount never goes over RBS interest free amount; as balance is an average interest isn't compounded | ||||||
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