Gimmicks fail test

By THIS IS MONEY
Updated: 19:00 EST, 11 July 1999

Banks trying to attract young customers have learned their lesson. Rather than competing to shower students with free gifts, they are focusing on financial guidance and support during higher education.

Gifts such as cash, travel cards and book tokens are still on offer, but the emphasis is now on lending and management.

Choosing a bank that has a branch near campus or at least offers Internet or phone facilities seems obvious. If the account pays interest when in credit, so much the better.

But with the average student finishing university £4,497 in debt, according to Barclays, the most important features are often overdraft facilities and advice services.

All student bank accounts offer interest-free overdrafts with limits that increase at various points during a course of study. The amount varies. Halifax, for example, offers up to £1,000 while Royal Bank of Scotland will go as high as £2,000.

Those who expect to need more than the interest-free limit should look at how much the bank charges for an agreed overdraft. While Barclays charges one percentage point over the 5% base rate, HSBC charges 9.4 percentage points above.

Students often have to apply for interest-free overdrafts, though at HSBC they automatically have the facility when they open an account.

The bank's Lisa James says: 'The interest-free overdraft facility is there if students want it. We don't want to encourage them to get into debt, but we do want to give them some independence managing their finances.'

But some students, such as 20-year-old Heidi Durnford, from Malmesbury, Wiltshire, prefer to discuss their needs with their bank before overdrawing their accounts. Heidi, who recently completed a three-year law degree at Oxford, says: 'When I applied to Barclays for an overdraft, it was a lengthy process. I had to fill in an application form and write a detailed list of my expected income and expenditure. 'The bank was unwilling to give me more than I needed as it did not want me to end up in unnecessary debt.'

Heidi was given a £700 interest-free overdraft facility in her second year. 'I didn't want a student loan, but instead had an overdraft facility, which I could control better. I would run up the overdraft during term time, then work during the holidays to pay it off.'

She adds: 'In the third year, I spoke to the bank about extending my overdraft and it was happy to increase it to £1,000.' Barclays has now simplified its paperwork, but other banks still prefer to talk in depth to students before granting overdrafts.

Andrew Thomas of NatWest says: 'We sit down with students and decide on the most appropriate level of over-draft with them. This may be less than the full interest-free amount.'

A number of banks, including HSBC, Barclays and NatWest, appoint student officers in their college-based branches. Sometimes known as counsellors, they deal exclusively with students and can help with loans as well as provide advice on budgeting.

Help often continues after graduation with banks offering interest-free overdrafts for up to three years, as well as advice and repayment schedules for clearing loans.