Students should take nothing for granted

The Royal Bank of Scotland credits each student account with #10;

Midland and National Westminster more than double that, each offering a

#25 cash handout; TSB (Scotland) has four free MGM/Cannon cinema tickets

to give away; Barclays a #10 record voucher; Lloyds a Young Person's

Railcard worth #16. Only the Bank of Scotland refuses to play the

bribery game.

With student grants frozen, the size of the free overdraft is now the

big deciding factor in choosing a bank account, and yet at first glance

there seems to be nothing to choose between the banks who seem to have

all agreed that a free overdraft of #400 is what is on offer this year.

In matters financial, however, students should learn to take nothing

at face value. For example, NatWest increases the free overdraft to #500

for final year students, while the Royal Bank of Scotland only

guarantees that the overdraft is free for the first year.

For students who are determined to keep their accounts in the black --

and only one in five manage it -- the rate of interest the banks are

paying is all important.

Here the best deals come from Bank of Scotland and TSB (Scotland)

which are offering 4% gross and Midland which is paying 3% gross.

Students should also beware that free banking is under threat and that

most commentators expect to see the reintroduction of transaction

charges in the not-too-distance future with a charge made each time a

withdrawal is made from a cash machine or a cheque is written.

Most students budget by using their bank accounts frequently and for

small amounts, so the introduction of transaction charges could do

serious damage. Only Midland Bank is prepared to guarantee that there

will be no charges as long as the customer remains a student which

extends to postgraduate study.

The Royal Bank of Scotland's and NatWest's guarantee of no charges

extends to undergraduates only, and Bank of Scotland only guarantees no

charges in the first year, but this is better than Barclays and TSB

(Scotland) which offer no guarantee at all.

According to a survey carried out by Barclays and the National Union

of Students four out of five students end the academic year in debt with

an average debt of #1672. If this is the case, students have to

carefully work out which is the cheapest way to borrow once they have

used up their free bank overdraft.

Their next port of call should be to the Government-owned Student

Loans Company where it is now estimated that between 40% and 50% of

students have taken out a student loan.

The interest rate on student loans is linked to the rate of inflation

with the amount added to the outstanding loan. During the 1993-94

academic year the maximum loan has been set at #940 for students in

London, #800 elsewhere and #640 for students living at home.

The rate of interest has been set at just 1.2% compared with 3.9% in

the previous year, and 5.8% in the year before that, and 9.8% in

1990-91, the year student loans were first offered.

Student loans are repaid over five years in 60 equal monthly

instalments after the student graduates and finds a job.

If this proves to be insufficient, then students must gird their loins

for a visit to their bank manager to agree a higher overdraft. With the

exception of Barclays, which takes a relatively relaxed view of

unauthorised overdrafts, students exceed their free overdraft limit at

their peril.

Students who agree an additional overdraft with their manager pay a

cheaper rate of interest than normal current account customers. The

cheapest is Barclays which charges 7.1%, Midland and TSB (Scotland) both

charge 7.2%, NatWest 9.3%, Lloyds 11.3%, and Bank of Scotland 11.5%,

while at the Royal Bank of Scotland it is negotiable.

Unauthorised overdrafts are the road to financial ruin and should be

avoided at all cost. Rates of interest approach 30% with the NatWest

charging 33.8%. Financially choatic students should seriously consider

banking with Barclays which charges a relatively reasonable 13.6% on

unauthorised overdrafts.

All the banks are offering cheque books, cheque guarantee and cash

cards. Students' love of travel is acknowledged by Bank of Scotland,

Lloyds, Midland, NatWest and Royal Bank of Scotland which also offers

commission-free travellers' cheques and foreign currency.

Students who are determined to stay overdraft and student loan-free --

and there are still a few who manage this miraculous feat -- are

probably better off sticking with simple cash card accounts which don't

allow you to overdraw.

When we surveyed school-leaver accounts two weeks ago, we found that

the Halifax was offering one of the best deals on the High Street paying

interest of 4.25% gross to all under 21-year-olds on the Maxim current

account, and CardCash and Instant Xtra Plus accounts.