Don't stick with your student bank account when you graduate. By switching to specialist graduate deals, even up to two years after university, you may be able to gain £100s a year.
Banks see graduates as a whole new target, so many offer special terms unavailable to other people, such as 0% overdraft deals for up to three years. Therefore, picking the best can save you serious amounts on your overdraft. If you graduated in the last three years, check now, then ditch and switch.
Five facts everyone should know
If overdrawn, get the biggest 0% deal possible
If you are already overdrawn on your existing student account, you may be able to make things easier and cheaper.
Look for the biggest and longest-lasting interest-free overdraft you can get. This isn't about borrowing more, though. The aim is that by not paying interest, more of your money can go towards clearing your actual debts. To find the right deal see the 0% graduate overdraft section.
Graduate accounts aren't just for new graduates
Stick with your current student account and you may find your 0% overdraft quickly diminishing in the first year after university. Some graduate accounts offer preferential terms for up to three years.
Therefore, even if you graduated in 2009 or 2010 you may still be able to gain by switching to a graduate account now.
Use your graduate 0% to wean yourself OFF overdrafts
The interest free period on graduate overdrafts lasts between 1-3 years, after which you'll be subject to charges and fees for continuing to use it.
The aim when getting a graduate account should be to gradually reduce the overdraft so that by the time you're being charged for it, you no longer have one. The best way to do this is to think of it as a debt and that you need to 'pay some back' each month.
So if you have a £3,000 overdraft which reduces gradually over 3 years, you need to be repaying at least £85 a month. In other words at the end of each month, your total overdraft should be £85 less than the prior month. To help use the free budget planner and money makeover guides.
Likely to be in-credit? Max out your interest
If you're one of the lucky ones who will be in-credit for much of your first few years of banking, then forget overdrafts and focus on the accounts which pay the most interest.
These tend to be standard bank accounts rather than special graduate deals, and therefore to get them you'll usually need a regular income of more than a set minimum. See the Top In-Credit accounts for the best.
Alternatively, if you're super-savvy financially, then there is a strategy you could make even more money on, by utilising 0% overdrafts to make cash. See Current Account Stoozing below.
Never go over your overdraft limit
This isn't a rule just for graduates, its a rule for life. The game changes totally if you go beyond your overdraft limit - charges shoot up and you can can be caught in a vicious cycle that is tough to ever escape from.
If you are struggling, at least talk to the bank and try and agree an extension to your overdraft, though then you're likely to be charged interest of 9.9% AER to a huge 19.9% AER - still far better to plan and budget to avoid this.
If not, or you go over without permission, then the charges can be enormous - up to £35 per transaction (so a shopping trip in 5 shops spending £30 on your debit card could see you facing £175 of charges!) beware. More info in bank charges compared.
Top graduate 0% overdrafts 2011/12
To be a winner here, banks must offer the biggest 0% overdrafts for the longest period.
It's worth noting, if you think you've seen accounts offering higher limits, be wary. Some banks give 'guaranteed' amounts to those accepted, others publish 'up to' amounts - so ensure you're comparing like with like.
To get any of the following accounts you are required to pass a credit score (see credit rating guide).
Existing Halifax/Bank of Scotland student account holders should not switch
Don't automatically switch if you've a Halifax/Bank of Scotland Student Account.
Some existing Halifax/Bank Of Scotland (Hbos) student accounts holders will be given a £3,000 interest-free overdraft for the first year of graduation as an extension of their student account.
Therefore, if you're with Hbos and already have an overdraft bigger than £2,000, you may want to stick with it for this year, then switch to the best graduate account next year.
Royal Bank of Scotland.£2,000 overdraft in year one, PLUS cashback.
- 0% AER
- 9.9% EAR.
- 9.9% EAR; £6 daily charge, £6 returned item fee.
- Yr 1 £2,000, Yr 2 £1,500, Yr 3 £1,000
The overdraft available with the RBS is GUARANTEED (ie, it is definite, not maximum possibles) for accepted applicants at £2,000 in the first year after graduation, £1,500 in the second year and £1,000 in the third. Borrow over these limits and any agreed lending is at a reasonable 10% APR.
The cashback
The real doozy here is that for the first six months you'll also receive 2% cashback up to £125 for spending on your debit card. In other words, spend £100 and you get £2 back. Usually, you only get this on the Top Cashback Credit Cards. However, don't see it as an excuse to spend more, effectively it's just a discount on all your normal spending.
To get this you will need to credit your account with £1,000 each month, which effectively means you need to be paying your salary of £14,200 in to the account (you don't need to be in-credit, just ensure this amount is going in).
RBS’s sister bank Natwest offers a similar 0% overdraft and cashback card deal. Except its 2nd and 3rd year overdrafts are lower and its unarranged fees higher.
Lloyds TSBGood guaranteed limits, costly if you borrow more.
- 0%AER
- 16.77% EAR.
- 16.77% EAR; daily charge of £5, returned item £10.
- Yr 1 £2,000, Yr 2 £1,500, Yr 3 £1,000
If you'd prefer an alternative to RBS, perhaps due to branch proximity, the next best is from Lloyds TSB, which also offers an interest-free overdraft of £2,000 in the first year after graduation, £1,500 in the second year and and £1,000 in the third, matching RB.
These are also guaranteed to be the stated sizes if you're accepted, though here you must actively apply (ie, ask 'em) to extend to the tier you are eligible for.
However, if you need to borrow more than the 0% limit and you agree this with Lloyds they'll charge an expensive 17%. If it isn't approved, you'll be charged this rate plus big fees on top - so avoid at all costs.
Top in-credit graduate accounts 2011/12
If you have a job, earn over £14,200 and are likely to be consistently in-credit then you should go for the account that pays you the most interest. These aren't all specific graduate accounts, they're the best standard bank accounts - but they often beat graduate deals if you're in-credit. Do scan through all the picks as they've different strengths.
However, their overdrafts are likely to be much smaller, or more expensive, so only do this if being overdrawn is a very unlikely scenario. To get any of the following you are required to pass a credit score (see credit rating guide).
Do note, if you are likely to be substantially in-credit, then its usually best to shift larger amounts of cash into top savings accounts to maximise the interest.
Winner on rate: £100 cash & 5% interestSantander: Provided you earn over £14,200
- In-credit interest: 5% AER up to £2,500 (1% after 12 months), 0% AER above that.
- Arranged overdraft Cost: 0% for 12 months, then 50p per day, capped at 10 days a month.
- Unarranged overdraft fees: £5/day
- Min monthly pay-in: £1,000 (explanation)
If your regular income is at least £14,200, you can switch an existing current account to the Santander* Preferred account and bag £100 cash, 5% in-credit interest on the first £2,500 for year one (1% after that), plus a 0% overdraft for the first year (though it's likely to be less than the top graduate accounts above).
You must use its 'Account Transfer Service' to move across direct debits and standing orders, and pay in your £14,200+ salary to get this (there's a £2 fee if you miss the £1,000/mth payment). You should get the bonus within three months.
| 41% | 35% | 23% |
 |
 |
 |
| Poor | OK | Good |
| Date: Feb 2011 | Voters: 1,627 | ||
Customer services feedback
In our February 2011 poll Santander came bottom for customer services, 41% of customers who voted said they received poor customer service. While this isn't great at all, it has improved since our last poll three months ago.
As always MoneySavingExpert.com ranks by rate, yet we wanted to bring you this feedback as it's important to realise you may sacrifice some customer service for this gain.
Top long term: £5/monthHalifax: You must earn £14,200+ & never go overdrawn
- In-credit interest: £5/month (AFTER tax).
- Arranged overdraft Cost: Up to £2,500: £1/day. Over £2,500: £2/day.
- Unarranged overdraft fees: £5/day
- Min monthly pay-in: £1,000 (explanation)
The Halifax* Reward account pays a flat £5 each month you deposit £1,000 ie, put in your salary of £14,200+ and you'll be fine.
Yet don't go for this account if you sometimes go overdrawn (even occasionally) as the charges can be huge (see the Halifax overdraft charges story).
Halifax confirmed it has no plans to change the £5/month feature, though technically it could stop it anytime. The payment is 'interest after basic rate tax' so non- or higher-rate taxpayers should claim extra or pay more via tax returns (see Interest Rates Guide).
| 17% | 47% | 36% |
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| Poor | OK | Good |
| Date: Feb 2011 | Voters: 681 | ||
Customer services feedback
In our February 2011 poll Halifax came towards the bottom for customer service. Though 47% of in credit customers rated it OK. In recent months HBOS increased the bonus on its current account which put more demand on the switching service.
As always MoneySavingExpert.com ranks by rate, yet we wanted to bring you this feedback as it's important to realise you may sacrifice some customer service for this gain.
Top for cust. service plus biggest bonus First Direct: Pays £125 bonus if you earn £23,100+
- In-credit interest: NONE.
- Arranged overdraft Cost: 0% up to £250, 15.9% above that.
- Unarranged overdraft fees: £25 paid item fee or unpaid fee of £0, £10 or £25.
- Min monthly pay-in: £1,500 ( explanation )
If you get a well-paid graduate job and earn over £23,100, new First Direct* 1st account customers get a £125 bonus by transferring a salary of at least £1,500 a month within the first three months. It pays no in-credit interest, but in most feedback on customer service First Direct rates very highly (see below).
Due to this, it also offers a second £100 if you switch away within a year, if you've maintained the monthly £1,500 deposits. The sting in the tail is, miss the min. deposits but keep the account open and you'll be whacked with a £10 monthly fee.
| 2% | 7% | 91% |
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| Poor | OK | Good |
| Date: Feb 2011 | Voters: 584 | ||
If you were to get this, then ditch and switch between six months and a year after, the double bonus makes it an even bigger winner.
Customer services feedback
In our February 2011 poll, First Direct came first for customer services. with a massive 91% of in-credit customers saying they received great customer service.
Royal Bank of Scotland.Cashback at 2% for 6 months PLUS 0% overdraft.
- In-credit interest: 0% AER
- Arranged overdraft Cost: 9.9% EAR.
- 9.9% EAR; £6 daily charge, £6 returned item fee.
- 0% Overdraft: Yr 1 £2k, Yr 2 £1.5k, Yr 3 £1k
- Min monthly pay-in: £1,000 (explanation)
The top overdraft account is also good if you're in credit, RBS Graduate Royalties gives 2% cashback for the first 6 months, up to £125 if you pay in at least £1,000 per month. It's only good if you're likely to spend enough to get the £125 (£6,250 of spending). If this is unlikely then look at the in-credit accounts above and a Top Cashback Credit Card (though you'll need a top credit rating to be accepted).
Plus if you need it, the overdraft available with this account is guaranteed for accepted applicants at £2,000 in the first year after graduation, £1,500 in the second year and £1,000 in the third.
Alternative: Natwest
- 0% AER
- 17.81% EAR.
- 17.81% EAR; £6 daily charge, £6 returned item fee.
- 0% Overdraft: Yr 1 £2k, Yr 2 £1k, Yr 3 £500
- Min monthly pay-in: £1,000 (explanation)
You can get a similar account from Natwest giving the same cashback offer of 2% for 6 months up to £125 providing you pay in £1000 a month. Again, it's only a good deal if you think you'll spend £6,250. Though it has lower guaranteed overdraft limits in the second and third years. Year 2 gives a limit of £1000 and year 3 £500.
You may make even more stoozing current accounts...
Please don't even read this unless you're an anally-retentive financial superhero, as the consequences of getting it wrong can be a real problem and with low savings rates the current returns just aren't that good anyway.
Yet for the sake of the theory, even if you're likely to be mostly in-credit you could choose the biggest and longest-lasting interest-free overdraft and use a technique we call 'current account stoozing' to make money (see stoozing guide for full definition of the word).
Once you get the account, take cash out of it and plop it into top-paying instant access savings (see Top Savings and Cash ISA guides) leaving yourself reasonably near, but never over your overdraft limit (and enough room to do your normal spending). Always beware any changes in limits.
As a result, you're earning interest on money the bank's lent you for free, giving potential profit of around £120. However, this isn't an excuse for spending or borrowing more. If you're not financially disciplined please DON'T try it.
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High street graduate account details
Nine high-street banks offer graduate accounts, compare each one to find the right account for you. Each bank has varying overdraft limits and term & conditions.
The size of the saving
With the Co-op bank, a graduate with an overdraft averaging £1,950 then £1,450 and £550 for the three years after graduation would pay £200 in interest.
Yet with both RBS and Lloyds TSB you wouldn't pay any interest at all, thus leaving you £200 better off.
| Accounts | Interest-free overdraft |
Authorised |
Overdraft cost |
Saving |
||
|---|---|---|---|---|---|---|
Year 1 |
Year 2 |
Year 3 |
||||
Co-Op |
£2,000 |
£0 |
£0 |
9.9% |
£200 |
- |
RBS Graduate |
£2,000 |
£1,500 |
£1,000 |
9.9% |
£0 |
£200 |
(Overdraft averaging £1,950 year 1, £1,450 year 2, £550 year 3*) | ||||||