Student overdraft sweeteners that turn sour for graduates

STUDENTS are being warned to look beyond generous interest-free overdraft offers and consider charges if they fail to clear the debt after graduation.

Free overdrafts on student current accounts range from £1,500 to £3,000, but some banks want their money back sooner than others.

HSBC offers students a £3,000 overdraft over three years, but, after they finish studying, the bank moves them to its graduate account and charges 19.9 pc interest on debts over £1,500.

It means students who fail to clear a £3,000 debt will have to pay £300 a year in interest.

Nationwide moves account holders to its FlexGraduate account when their course ends. Students continue to pay no interest until the end of year one, at which point the overdraft limit is reduced to £2,500.

At the end of years two and three, the limit is reduced to £1,750, then £1,000, respectively. But, in year four, graduates are charged 39.9 pc interest on the remaining overdraft debt.

NatWest offers an interest-free overdraft of up to £2,000. Yet, in the third year after graduation, the bank charges interest at 19.89pc and a £6 monthly fee. On a £1,000 overdraft debt, students would be charged £270 a year if no repayments were made.

Andrew Hagger, personal finance expert at the website MoneyComms, says: ‘Students should consider how long the graduate account gives them to clear their borrowing without being hit by hefty interest charges.’

HSBC says the average overdraft moved from its student account to a graduate account is less than £700 and only a small proportion of customers have an overdraft over £1,500.