Which graduate account?

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By Paul Davies
Know Your Money Editor

It's the time of year where students are receiving their degrees and thinking about the future without a student loan.

For many the prospect of a student loan burden plus other debts such as overdrafts could be a little unnerving but there are ways people can ensure they make the most of what they have.

A number of graduates may think they have to stick with their existing bank, without realising they are perfectly entitled to switch and potentially get a much more profitable deal elsewhere.

These accounts are designed to ease graduates into working life by still offering student conditions, such as an interest-free overdraft, but phasing it out gradually over time.

Graduate accounts

Graduate accounts are current accounts used on a regular basis, which last up to three years and are specifically for those finishing higher education.

The terms offered by this kind of savings facility are often a large improvement on normal bank accounts and if used correctly can mean more cash in the pocket of the user.

People who already have a graduate account can switch to another bank and this may often be worth considering.

With some banks the special terms will only be available for a year, while others extend them for three years post-university and allow new customers to open an account of that sort until that point.

The best method?

Those who have debts other than student loans may be wise to look for the longest lasting interest-free overdraft facility as spare cash can then go towards repaying debts.

Student loan debts - i.e. those from the official loans from the Student Loans Company - are excluded as they are a very cheap, long-term debt that generally should not be shifted or repaid any faster than necessary.

Money Saving Expert advises that if you only have this kind of debt, then consider yourself debt free.

However, those who are debt free may still wish to look for the best deal on offer.

Lloyds TSB Graduate Account

In order to qualify for the Lloyds account, graduates need to pay at least £500 into the nest egg each month and use it as their main current account.

The account provides an interest-free overdraft of up to £2,000 in the first year, £1,500 in the second year and £1,000 in the third year.

However, those who need to borrow more than the limit could be faced with expensive charges, while the in-credit interest rate is just 0.1 per cent.

NatWest Graduate Account

This account is available for three years after graduation and in order to qualify for it, consumers need to be a UK graduate, so it is suitable for people who are unable to guarantee they will be able to pay in a set amount each month.

This could make it worthwhile for those who are yet to secure their first full-time job. The account provides a tiered interest-free overdraft of up to £2,000 for three years, to allow time to bring down current account charges.

An interest-free graduate overdraft repayment plan is also available from the bank, so the account can get back in the black through structured repayments.

Users are also able to set notification limits for the account, so that a text is sent when an overdraft limit is reached or money dips below a certain point.

The mobile alerts could be a good way of staying in control of money.

Royal Bank of Scotland Graduate Royalties Account

This account is available for three years after graduation and demands no minimum monthly deposit or fees, which could make it a flexible choice for those who have recently left university and are without the security of a job.

It is possible to apply for an interest-free overdraft of up to £2,000, with this falling to £1,500 two years after graduation and to £1,000 after three years.

Alternatively, an interest-free overdraft repayment loan may be an option worth considering for those wanting something with more structure.

People with this account can also opt for a graduate loan of up to £15,000, with competitive rates.

A graduate loan of £5,000 would come with a typical APR of just 3.8 per cent. However, this is variable, so not everyone will qualify for such a low rate.

Important Notice
This guide is intended for general information only and is not intended as, and does not constitute, any form of advice, recommendation or endorsement by us of any particular product(s) or services and you should rely on your own further research and professional advice in relation to your specific requirements and circumstances before purchasing any products or services. Use of this guide is subject to the Terms of Use of the KnowYourMoney site.