UPDATED 2016: What happens to your student overdraft when you graduate?

This is one of the most popular guides on the Young Money blog and with good reason. It explains the pitfalls of transitioning from a student account to a graduate account, not to mention the shock of possible fees for even the slightest dip into the red once you are switched into a normal current account. Here is how to avoid slipping up (spoiler: be proactive and switch your account to suit your needs!)

Iona Bain

In 2008, HSBC was slated for winding up interest-free overdrafts when the ink was barely dry on students’ exam papers. A campaign led by the National Union of Students called “Stop the Great HSBC Graduate Rip-Off” attracted 5000 supporters and led to the bank scrapping the policy and introducing a graduate overdraft service, to which student account customers were automatically switched. Now, many other banks have graduate services that can last up to three years once you leave. These incorporate interest-free overdrafts and are set at a certain amount in the first year which reduces every year until the account ends.

But when this ends, graduates are liable to sleepwalk into a current account with the same bank – and this could be a very costly mistake for those that rely on an overdraft. Even if you have an approved overdraft from the bank, expect to pay for it.

Here is a round-up of what the banks are offering students when they graduate. Some offer a three year full-blown graduate account with perks, some offer only a brief grace period to pay down your overdraft before you are shunted into a standard current account. If you haven’t paid down your overdraft, you may be in for a nasty surprise the first time you try to borrow money as an officially designated “grown-up”.

BANK Graduate account/service Unauthorised charges Grown-ups account Graduate perks
Natwest/Royal Bank of Scotland After 1 January 2013, a free £2000 overdraft is offered in year 1 of graduation, going down to £1000 in year 2. No free overdraft is offered in year 3 £6 a day for unarranged overdrafts greater than £6. Max £90 per charge period (the month-long period between each bank statement). The graduate account reverts to a Select account usually. An arranged overdraft costs £6 a month, unarranged costs £6 a day if its more than £10 (or £25 if you get Overdraft control) Free tastecard and cashback  points system whereby you earn point (1p) for every £1 spent in selected retailers. You can put it in the bank, trade it for gift cards or tickets, or donate the amount.
Santander Free overdraft of £2000 for years 1 – 3 £5 per day, max 10 days per month (i.e. £50), plus paid/unpaid item fees of £5/£10. Everyday current account: Arranged overdraft fees are £1 a day up to £2000, £2 for £2000 to £2999 and £3 for £3000+. Unarranged overdraft fees are £6 a day.  In credit interest: 1% for £100+, 2% for £200+, and 3% from £300 to £2,000.
Nationwide £2500 in year 1, £1750 in year 2, £1000 in year 3 The account simply locks down if you try to go over your borrowing limit and will only reopen when you settle the balance Flex Direct: free overdraft for 12 months then first time fee refund, then 50p a day on amounts up to £10, then £5 a day capped at £60 per month. N/A
HSBC £1500 in year 1, £1000 in year 2. No overdraft in year 3 19.9 per cent Agreed overdraft: 19.9 per cent. Un-agreed is £5 a day up to £80 a month. N/A
Bank of Scotland £2000 in year 1, £1500 in year 2, £1000 in year 3 £6 a month plus 19.89 per cent EAR. Possible daily fees of £5 or £10 beyond a certain amount. Classic: £25 free buffer, then £6 a month plus 19.89 per cent EAR and possible daily fees of £5 or £10. 15 per cent cashback when you bank online
The Co-operative Bank £2000 in year 1. No overdraft thereafter 9.9 per cent on agreed overdrafts, 18.9 per cent on un-agreed overdrafts Co-op current account: 18.9 per cent formal or informal overdraft £150 when you switch to the Co-op current account (if you don’t need an overdraft)
TSB £2000 in year 1, £1500 in year 2, £1000 in year 3 16.77 per cent EAR for planned overdrafts plus £6 monthly fee (daily fees of £10 for unplanned overdrafts, up to £80 per month) TSB Classic: £25 free buffer then 19.94 per cent for planned overdrafts plus £6 monthly fee (daily fees of £10 for unplanned overdrafts, up to £80 per month) N/A
Lloyds £2000 in year 1, £1500 in year 2, £1000 in year 3. 16.77% EAR plus £6/month usage fee 16.77 per cent EAR for planned overdrafts plus £6 monthly fee (daily fees of £10 for unplanned overdrafts, up to £80 per month) Lloyds Classic: £25 free buffer then 19.89 per cent for planned overdrafts plus £6 monthly fee (daily fees of £10 for unplanned overdrafts, up to £80 per month) N/A
Halifax £3000 in year 1. No overdraft thereafter 7.2 per cent agreed, 24.2 per cent unagreed. Reward Current account: £50 free buffer, then planned overdraft fees of £1 a day up to £1999, £2 a day between £2000 and £2999, £3 a day over £3000. £5 a day for unplanned overdrafts £100 to switch to Reward, £5 reward per month if you pay in at least £750 a month
Barclays £3000 in year 1, £2000 in year 2, £1000 in year 3 Agreed: Free up to £1000 over limit, 50p a day between £1000 and £2000, £1 a day over £2000. Un-agreed: £8 a day as service fee for unpaid items Barclays Bank account: £15 buffer, up to £1,000 at 75p per day, up to £2,000 at £1.50 per day, over £2,000 at £3 per day. “Emergency borrowing” fees of £5 a day.


The possibility to join Barclays Blue Rewards when you get the normal bank account (if you put I at least £800 a month)

Table correct as of 10th September 2016, compiled using information from banks/building societies.

Don’t stay with your bank for the sake of it.

If you have recently left university, keep a close eye on what happens to your student account. The halcyon days of an interest-free overdraft are at an end – try your hardest to borrow less and make sure you understand the terms of your new overdraft if you have to dip into the red. Switch to a different bank/building society if it isn’t working for you.

Look at the small print.

Accounts that offer credit interest of 5% may only offer that rate on the first £1000 or £2000 of your balance. You also may be required to fund your account with a certain amount each month. Do not opt for this unless you have a steady and assured income and even then, you might consider a savers account with more decent interest instead.

Beware of a packaged account.

Bank staff will try and sell you an account with add-ons, such as mobile phone insurance and breakdown cover. You may find specific cover for cheaper prices elsewhere, and you will have to pay a monthly fee of anything between £6.50 and £25, but not get enough in return.

Switching accounts is not a huge hassle!

New guidelines mean the process should be completed within ten days of you contacting a new bank. You only need to fill in certain forms and letters, which the bank will provide, and you may get cash sum with some banks. But don’t let the initial sweeteners distract you – get it wrong, and you could be paying your freebie cash back in overdraft fees before you can say “rah Toby, that final ball was jolly marvellous”.

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