Graduating your finances: Graduate current account guide

The students of 2008 graduate throwing their mortar boards in the air are warned they will be landing in a tough financial landscape.

The shadow of recession is moving across the horizon meaning employment prospects are gloomy and so sorting out their finances is more important than ever. Leaving university now means being ready to manage debt. But how can the banks help?

There are only six providers of graduate finance in the UK so choice is limited for those looking for a graduate loan to help them get on their feet or a graduate current account with a capacious enough overdraft.

“Graduates will often remain loyal to their student account provider. However, as long as you have proof of qualification and have managed your account within your agreed overdraft limit, there is no reason why you shouldn't switch to a better deal," says Michelle Slade, analyst at Moneyfacts.co.uk.

Switching accounts

Switching bank accounts to a better graduate deal is an easy process, as with any current account, as banks take care of all the switching direct debits and standing orders etc.

So what you have to weigh up is what the bank is offering you.

"Student and graduate accounts are tailored to meet the needs of people in these stages of their lives," says Anita Ballantyne at NatWest.

"Moving on from a student to a graduate account brings with it many relevant benefits including interest-free overdrafts, access to graduate loans, a tailored repayment plan to suit the needs of the graduate at that time."

She adds: "We offer graduate advisers who are specialised in dealing with a variety of graduate issues including special professional loans, getting to grips with money issues to do with your first salary, understanding how one can best start paying off any student loan they may still have etc."

Overdrafts

The six major players in the graduate market all offer overdraft facilities usually lasting for up to three years. Interest rates on overdrafts – and on balances – range across the banks.

Figures from Moneyfacts show the highest overdraft is £3,000 from Barclays Bank. But over five years the size of the overdraft falls year-by-year to £200.

However, in the third year of the deal the Barclays overdraft limit is at £1,000, which matches the competition.

Along with the overdrafts on offer, though, the advice is also to look at the fees charged if you go over the limit.

“Graduates’ incomes and expenditures can initially be rather erratic, which may on occasion result in unauthorised borrowing," says Ms Slade.

"This can be an expensive and should be avoided if at all possible. For example, Royal Bank of Scotland charges interest of 29.84 per cent, and applies a penalty fee of £10 per month. A better deal can be found at HSBC, charging its standard interest rate of 18.8 per cent and overdraft arrangement fee of £25. The £25 arrangement fee is refunded if it’s the first increase in your overdraft in six months."

Graduate loans

Graduate accounts also offer access to graduate loans.

Graduates could shop around for personal loans on the market in general, but with limited career history and proven salary, the risk of rejections and black marks on a credit record grow.

"With graduate loans the idea is to reduce existing debts in one fell swoop. Banks also tend to be more flexible with graduates, knowing they have the potential to earn more and may stay with the bank later in life," Ms Slade explains.

Lloyds TSB offers graduate loans from £1,000 to £10,000 at 9.9 per cent typical APR. This compares with 8.4 per cent at NatWest and 7.7 per cent from the RBS Graduate Royalties account.

Along with loans, banks also generally offer credit cards. As with all credit cards, look around the whole market for better deals elsewhere.

Carrots

However, it is often not the loans and overdrafts that banks dangle as incentives. All the banks offer some kind of extra benefit – from rail cards to shopping discounts.

Remember these carrots are in place as people tend to stay with their accounts for life – with just six per cent of people changing current account provider last year, recent research by the Office of Fair Trading (OFT) reveals.

Barclays offers shopping discounts, mobile phone insurance and breakdown cover, while Lloyds TSB tempts new customers with return European flights and £50.

But added bonuses should be last on your list.

Ms Slade advises: “Unlike the student account market, where incentives are the often the main focus point for providers, marketing, only Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland offer incentives or benefits to graduates.

"But don’t be lured simply by the incentives on offer, as charges may soon eat away any initial gain. Remember, they only have any value if you are actually going to use them!"

Graduating your finances from a student account, don't take the easy option and slip into your bank's next deal. Shop around for what is best for your finances.