Scottish Daily Mail

How HSBC is luring students into an OVERDRAFT TRAP

- By Holly Thomas money.mail@dailymail.co.uk

STUDENTS are being lured into a debt trap by one of Britain’s biggest banks, Money Mail can reveal.

HSBC offers students heading to university next month an interest-free overdraft that rises to £3,000 in their final two years — the biggest perk of any High Street bank. It also offers a £60 Amazon gift card and student membership to its Prime film and shopping delivery service, worth £39 a year.

But after their courses, they are moved to its graduate account, which has an interest-free overdraft of just £1,500.

That means young adults suddenly face hefty charges on up to half the debt they accrued while studying.

HSBC imposes an interest rate of 19.9 pc on anything above £1,500 — nearly 80 times the official Bank of England borrowing rate. If it took a year to bring the overdraft below that level, HSBC would take fees of £298.50.

Meanwhile, Santander penalises some students if they continue their studies after they graduate.

Its 123 Student account offers a £2,000 interest-free overdraft as long as £500 is paid into the account each term.

The bank lures students with a free four-year 16-25 Railcard (worth £120 and giving a third off tickets) and 3pc on positive balances from £300 to £2,000.

Its 123 Graduate account offers the same level of interest-free overdraft — but its 123 Postgradua­te account only allows up to £1,500, rising to £1,800.

Santander says a student with a £2,000 overdraft would not qualify for the postgradua­te account unless they paid off the £500 difference.

By contrast, other banks and building societies allow students to keep their interest-free overdraft at the same level for a year after graduating, giving them time to clear debt and avoid fees.

Experts warn that the policy at HSBC, and to a lesser extent Santander, will set many students on the road to debt problems.

Andrew Hagger, a financial expert at MoneyComms, says: ‘This is a sort of debt cliff-edge that risks giving students a nightmare start in life — a bigger debt worry to manage when they can least afford it. They need all the help they can get from banks to gradually reduce their overdrafts with enough time to do so — not a sudden drop resulting in big charges and even more debt that will set them up for problems into their 20s and 30s.’

Most banks offer generous perks because they know many students will remain customers for decades. And the main lure for students is the interest-free overdraft. It’s a vital financial tool at university — particular­ly in England, where student fees are often more than £9,000 a year and the average graduate has debts of £50,000.

Applicants are credit checked, so not everyone gets the maximum. Students may be offered less if they have a poor behaviour history on their credit file, such as missing mobile phone contract payments. Nationwide says it always offers the full overdraft to students who pass the credit check. Its FlexStuden­t, one of the top accounts, offers a £1,000 interest-free overdraft in year one, £2,000 in year two and £3,000 in the third and final years. The account has cash-back if you spend with some retailers, and pays 1pc credit interest. Students must pay in £500 per term to qualify. Its follow-on account — FlexGradua­te — allows students to keep the £3,000 interest-free for 12 months, when it’s reduced to £2,500. NatWest and Royal Bank of Scotland both offer a £2,000 overdraft in year one in student accounts that come with a four-year National Express Coachcard worth £35, which gives a third off standard coach fares. The follow-on graduate account comes with a £2,000 interest-free overdraft in year one. Barclays Student Additions lets you apply for an initial £500 feefree overdraft, rising to £1,000 in year one, £2,000 in year two and £3,000 in the third and final years.

The graduate account offers £3,000 in year one and drops in subsequent years, so the debt can be repaid gradually. Account holders get cashback from retailers such as Apple, Topman, Oasis, Gap, Boots and Waterstone­s.

TSB’s Student account offers an interest-free overdraft of up to £1,500. When students graduate, the interest-free element rises to £2,000 in the first year.

Some banks have cut interestfr­ee overdrafts for students starting this year — including HSBC, which, until now, had offered £3,000 from the word go.

Halifax now offers up to £1,500 interest-free borrowing for students, which remains for a year after graduation. Its website explains anything over £1,500 will be charged. Last year, it would lend students up to £3,000 interest-free.

Meanwhile, Lloyds Bank dripfeeds its interest-free overdraft, starting with £500 for six months, rising to £1,500 by month ten. It comes with an NUS Extra card for three years, worth £32, which offers 40pc off at Pizza Express, up to 10 pc off at Apple and 25 pc off student prices at Odeon.

Its graduate account starts with a £2,000 interest-free overdraft.

Lloyds and Halifax customers studying in Scotland should ask the bank to extend their interestfr­ee period for an extra year to cover their full studies.

An HSBC spokesman says: ‘We give customers two months’ notice of the change to their overdraft arrangemen­t, so they have time to switch their account to another provider or make a payment to reduce their overdraft.

‘If a customer is experienci­ng financial difficulti­es, we would want to hear from them.’

It says the average overdraft for a student account is under £900, and £1,100 on a graduate account.

Santander says overdrafts are assessed on a case-by-case basis, so postgradua­tes may not lose out.

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