While this is a daunting thought for many, there is no need to panic. Banks fight hard to attract new customers when students head off to university, but the good news is that the graduate current account market is also highly competitive so the favourable terms such as interest free overdrafts will continue for a few more years, giving you the chance to get your finances in order.
However, the mistake a lot of graduates make is they simply stick with their current bank and move over to its graduate account. There is no need to do this as banks are eager to accept new graduate customers and their debts - so shop around and get yourself the best deal. Also, not all banks offer graduate accounts - Halifax and Bank of Scotland don't, for example. Instead, they continue their student terms for a year after graduation - graduates who bank with them should definitely look to move elsewhere as most graduate accounts run for three years.
How to choose the best graduate account
If you need a large overdraft
If you have debts then look for the largest and longest-lasting interest-free overdraft. In this regard, the Barclays Graduate Additions Account appears to be the most attractive as it has an interest-free overdraft of £3,000, with an unauthorised rate of 27.50%. However, the terms of this overdraft are tiered meaning the maximum interest-free limit is reduced each year - in year two up to £2,000; in year three up to £1,000; in year four up to £500; and from year five onwards up to £200. This should help you clear your overdraft gradually.
There are several accounts offering interest-free buffers of £2,000 - the Royal Bank of Scotland (RBS) Graduate Royalties Account, the Abbey Graduate Current Account, the Lloyds TSB Graduate Account and the NatWest Graduate Account. Again, these facilities are tiered and reduce each year.
While tiering may not sound that attractive a proposition it is actually a really good way of helping you repay an overdraft. A flat overdraft requires discipline because it is very easy to get used to that borrowing facility and never get round to paying the overdraft down. This can prove costly because once the graduate terms end you will suddenly be left with a very expensive debt. Authorised overdraft rates on standard current accounts are often between 15% and 19%.
If you are regularly in credit
Not all students leave university in debt. If you are fortunate enough to run your current account in credit, most - if not all - of the time, then the in-credit rate and other account benefits are of greater importance than the overdraft facility.
If overdraft terms aren't a major consideration then the RBS Graduate Royalties Account is still the top deal on the market with a rate of 2.02%. In addition, there are numerous benefits available including 25% off concerts and plays when booked through Royalties Membership Services, 10% off selected holidays and flights; 15% off home insurance in the first year, 10% off lifetime car insurance rates and commission-free travel money.
The majority of graduate accounts, like standard current accounts, offer paltry rates of in-credit interest - generally just 0.1%. The exception is the Abbey Graduate Current Account, which offers an in-credit rate of 1.5% but the benefits are limited to an overdraft manager and a preferential loan up to £10,000.
But remember, you don't have to opt for a specific graduate account - it's worth considering a regular current account as well. The Alliance & Leicester Premier Direct account pays 8.5% on balances up to £2,500 for the first 12 months, you then earn one percentage point less than Bank rate, based on the current Bank rate of 5%, this means the long-term in-credit rate is a competitive 4%. A&L also offers a highly competitive overdraft - it is free for the first year and you then pay 50p for every day you're overdrawn up to a maximum of £5 per month. However, in order to qualify for this account you must pay in at least £500 a month. If you are not in a position to do that, you may prefer the Cahoot Current Account, paying 3.75% if you go without a chequebook, or 3.65% if you want one, but with which you do not have to pay in a regular amount to earn interest.
If you're planning to go abroad
For gap-year travellers who are planning to travel before they settle down and find a job, the Nationwide Flex Account is the most appealing as you will not be charged for debit card transactions when you're abroad.
To compare more graduate account rates and overdrafts use our current account comparison tool.
Have your say: If you have any questions about repaying student debts or tips you can offer those who have just graduated from university, visit our forum.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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