Graduates warned to watch out for 'banking graduation'
28 May 2003
Recent graduates should watch their bank balances or face losing hundreds of pounds, warns Intelligent Finance.
The end of the university year is fast approaching and more than 200,000 students who graduated two years ago will soon face a crunch point in their personal finances.
Graduates in the UK continue to be offered preferential deals by the 'Big 4' high street banks for a couple of years after graduation.
However, graduates of two years ago now face 'banking graduation', when banks transfer them from graduate accounts to their bank's standard offerings.
The impact on finances can by substantial if graduates stick with their existing bank and don't hunt out a more competitive deal. Some can find themselves suddenly going from paying 0 per cent on a £2,000 overdraft to 17.3 per cent overnight - an extra £350 a year in interest.
Grenville Turner, IF Chief Executive commented, 'Students get preferential treatment from the 'Big 4' at University and for a short time after graduation. Then the balance of the relationship alters dramatically. If students stick with the 'Big 4' they could end up paying more to borrow and getting less on their savings for the rest of their lives.'
For example, Barclays offers up to £1500 for two years, Lloyds TSB £2,000 for three years and HSBC and NatWest both offer a sliding scale of overdrafts reducing from £1,500 and £2,000 respectively over a three-year period.
IF states that a graduate with Barclays who still had their £1,500 overdraft at the end of the two year period would face interest at 15.6 per cent, costing them over £230 in annual interest.
Graduates at Lloyds - three years after leaving University - will find their interest free overdraft shoot up to 17.3 per cent.
Graduates facing their 'banking graduation' with debts are advised to shop around for a more competitive rate of interest than their bank is likely to offer them.