Graduates Warned To Be Wary Of High Interest Rates On Student Overdrafts

Fri, 30 Jul 2010

Graduates are being warned that they could find themselves paying sky-high interest rates of up to 19 per cent on their student overdrafts .

Most graduate account offerings come with a three-year interest-free period but the overdraft limit lowers each year, which is a condition that many account holders are unaware of.

According to research, the notification period set by each bank varies from lender to lender, with some not sending out any written notification at all.

Andrew Hagger, spokesman for Moneynet, said: "While the details of these interest-free limits will be explained when the account is opened, I think that it is reasonable to expect your bank to remind you within a month of the limit being reduced, especially if banks want to be known as transparent and for treating their customers fairly."

"If they don't do this and just rely on the information given to the customer when they open their graduate account, then there's a good chance that the customer will forget when the interest-free limit reduces and will end up paying more interest without realising it, until they receive their bank statement."

James Daley, money editor at consumer magazine Which?, advised students "to keep a close eye on their bank account when they leave university " as the terms, conditions and interest rates are likely to change once they have left.

He said: "Most banks give graduates some additional time to pay down their overdraft without paying any interest – but if you're in any doubt about what the deal is with your bank, it's well worth picking up the phone and checking."

Mr Daley added that graduates in this situation should consider a graduate loan to pay off their outstanding overdraft debt, as it will charge "a more reasonable rate".
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