Cash-strapped banks scale back on student freebies

In the run up to the new academic year, banks are forever offering ipods, five-year railcards, free driving lessons and even cash as incentives to open a bank account before the start of university.

Of course the most important thing students should look out for is how competitive and generous the overdraft terms are on any student bank account offered, but the goodies on offer are likely to turn heads. Lloyds TSB offers free youth hostel membership, Halifax offers free breakdown cover while Santander has free gadget insurance.

With those starting a course next month expected to graduate with debts pushing £26,100, it's important to be financially savvy, and when the full force of the rise in tuition fees comes into force the following year, this figure is expected to double.

So overdrafts are what matters, though the truth is they are difficult to compare. Both HSBC and Halifax have offered free overdrafts of up to £3,000, but in reality students have been offered an initial overdraft of just £500, which then may or may not be increased according to circumstance.

Martin Lewis of moneysavingexpert.com points out that the Co-op current has the best overdraft terms for students. The Co-op offers a guaranteed interest-free overdraft of £1,400 in the first year, rising to £2,000 in year three.

While size does matter, students should also consider the banks' different policies on how charges are applied should you exceed the limit. Lloyds charges an interest rate of 8.4 percent for unauthorised borrowing; but in contrast, NatWest and HSBC charge nearly double this (17.81 percent and 19.9 percent respectively). Halifax charges a whopping rate of 24.2 percent.

In contrast Santander charges £5 for every day you are over your limit with a maximum of £50 a month.

These things are good to know, but of course it's best to plan to avoid unauthorised borrowing altogether.

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