Banks are putting school leavers through tough credit checks for student accounts and charging higher unauthorised overdraft penalties than for ordinary customers.
Some are also dropping account perks and cutting the interest-free overdrafts for students who graduate next year.
As students face a bigger squeeze than ever before, Larisa Brown reveals how students can beat the banks.
Politics and French student Jessica Hall, 20, is one of the tens of thousands of students to be affected by the NatWest and RBS changes to their graduate account.
Miss Hall, from Lancaster, is going into her third year at Newcastle University with a £500 interest-free overdraft.
When she graduates in 2013, she will be among the first students to see their graduate interest-free overdraft cut from three years to two years.
‘I wasn’t aware it had been shortened. Hopefully, after two years I will be able to pay it back, but it is a real worry,’ she says.
Miss Hall will face 17.81 per cent interest on her overdraft three years after she graduates, while someone who graduated in 2012 will pay nothing.
Banks increasingly unwilling to woo students with lavish freebiesThere is usually a scramble by lenders to lure undergraduates with generous finance deals and lavish freebies.
But banks are increasingly unwilling to do much to woo this year’s crop of students.
This is down to fears of huge student loan debts of up to £9,000 a year, a 10 per cent drop in English university applications and worries that frustrated student customers will switch accounts.
Sylvia Waycot, of financial analyst Moneyfacts, says that students are crippled by more debt, which they are finding harder to manage. This makes them less attractive to banks than in previous years.
‘A lack of innovative incentives on student accounts indicates banks are not up for the fight to gain accounts,’ she says.
By comparison, competition for new customers for ordinary current accounts is fierce, with £100 bonuses to sign up and cash-back for spending on debit cards.
The National Union of Students says it is disappointed banks are doing little to entice school leavers, many of whom will be learning how to run their finances for the first time.
‘At a time when trust in banks is at an all-time low, it seems ridiculous for banks to make their services less attractive to students, who are potentially lifelong customers,’ says a spokesman.
More... New prepaid card for teens How students starting university this year may rack up a £4,145 interest bill Your guide to switching accounts and where the best offers are - including free money ARE STUDENT ACCOUNTS WORTH IT? Scrutiny: Banks are putting school leavers through tough credit checks for student accounts
Most student accounts offer a huge interest-free overdraft for up to five years of study, which is the best incentive to open one instead of a standard current account.
Typically, these range from up to £3,000 a year interest-free with Halifax and HSBC, £2,000 with NatWest and Barclays, and £1,500 with Santander.
Some of the higher overdraft limits are quoted as ‘up to’, which means the overdraft will be credit-scored — so if you don’t match a bank’s criteria, you may be offered a lower limit.
WHAT ABOUT THE FREEBIES?Free iPods and £100 bonuses used to be the hallmark of a student account, but banks have tempered more generous extras.
NatWest still offers a free young person’s rail card for four years.
If you open an account by November, Santander gives you £50. It also gives students a 1 per cent in-credit interest if the account is credited with £500 per term.
But others have cut back, with HSBC removing its travel insurance from the account this year.
IS A CREDIT CHECK REALLY NECESSARY?Credit rating specialists warn lenders are tightening their rules. This means more students will be denied access to the full interest-free overdrafts on offer.
At 18 years old, a credit history may not be particularly detailed; previously, this was not a problem for student account applicants. But the rise of internet shopping allows banks to check your online behaviour.
Those with missing payments for mobile phone bills or music websites, for example, could be marked down and qualify only for smaller overdrafts.
To boost their chances for a full overdraft, students should ensure they are on the electoral roll.
Anyone turned down should try rival lenders; a rejection at one bank doesn’t mean you won’t get an account elsewhere.
WHAT ABOUT OVERDRAFT FEES?Many students will exceed their interest-free limit, so check the charges additional unauthorised borrowing can incur.
Banks can charge unwitting students more than normal customers. Halifax charges students £28 if they make one payment taking them over their agreed overdraft, while current account customers are charged only £10.
And if a payment from their Halifax account takes them into an unplanned overdraft by less than £10 for one day a month, they will be charged £28.Current account holders are charged nothing.
WHAT HAPPENS AFTER GRADUATION?Typically, you get to keep your interest-free overdraft for three years once you graduate. This is reduced every year to help you pay it off. However, thousands of students with RBS and NatWest accounts are having their overdraft limits cut by £500.
All students who finish a degree in 2013 will have to pay 17.81 per cent interest (NatWest) and 9.9 per cent (RBS) on any overdraft in their third year after graduation.
So after two years, they need to clear their overdrafts to avoid charges.
Yet those who graduated this year will still get a £500 interest-free overdraft in their third year. ‘The changes were announced in 2010, and customers who opened accounts then were made aware of them,’ says RBS.
Lloyds and Halifax still offer an interest-free overdraft of £1,000 in year three.
ARE STUDENT CREDIT CARDS SAFE?They can, but avoid if possible. Most major lenders allow you to apply for a student credit card — usually with a £500 credit limit.
‘Students must not think of this as free money,’ says Paul Lawler, at MoneySupermarket.com. ‘The danger is not being able to pay off the credit every month.’
