If your child is going to university this year you should be reasonably pleased. She won’t be paying £9,000 a year for often sub-standard tuition. And she won’t find herself subject to an effective income-tax rate of 51% (for all graduates earning over £42,475), or 61% (those earning over £150,000). All this starts in 2012.
But that doesn’t mean things will be easy for them. Even now the average student graduates with £20,000-plus worth of debt and enters a job market in which their chance of getting a job aren’t good and their chances of getting the kind of job their graduate status would once have guaranteed are particularly bad. A total of 18.5% graduates are unemployed. All this makes it vital that they make the financial best of their time at university. This means running up as little debt as possible; never getting a credit card; and learning early how to spot and repel the attempts of the retail banking sector to rip them off.
Student bank accounts are a good place to start. Banks don’t make much money out of students, but they know that once a young person is signed up there is a good chance they will be a client for life (60% of British residents have never changed their bank account). That means that they will have plenty of chances to make money out of them later. That’s why banks put so much effort into trying to get students to sign up. Lloyds is offering music downloads to takers; NatWest is chucking out shopping discounts; and HSBC is going for well-off students with two years travel insurance. But choosing an account based on its perks is not a good idea. Much more important is the cost of the overdraft.
So which account offers the best deal? One to consider is the Co-operative. Students are likely to approve of its ethical stance and it also has the biggest guaranteed overdrafts in the market. Get an account and you’re sure to get an overdraft of £1,400 in the first year, £1,700 in the second and £2,000 in the third. If you need more and they agree to let you have it, the Co-op also charges quite a reasonable interest rate – 9.9%. Otherwise, look at HSBC or Halifax. Both offer interest-free overdrafts of up to £3,000. The problem is that you might not actually get the full amount. You get £500 for starters and then have to request rises. They might say yes, but they could say no. That makes their accounts just a bit more risky. Either way, whatever you do, don’t go over your agreed limit. Even the usually nice Co-op will charge you interest at over 15% and add on charges if you do. The Halifax will go further: 24.2% plus charges. A student who ends up paying those will soon understand why retail banking is as profitable as it is.