Banking on a degree of help

Banks ... budgeting ... benefits. Our guide to making the most of your money at university and, on page 13, as a new graduate

In around a month's time several hundred thousand teenagers will leave home, stick a poster of Eternal or Oasis (or both) on the walls of their new room, turn the music up and, perhaps, tentatively offer their neighbours a cup of tea.

When it comes to making friends, however, students will find banks beating a path to their door.

Student banking deals are better than ever before. Deals on offer this year include cash freebies of up to pounds 50 and interest-free overdrafts of up to pounds 1,500.

The interest-free overdrafts and preferential rates on larger debts will look highly generous to anyone who has been in hock to a bank.

But the banks also hope to grab students' attention with their freebies.

In the 1980s it was Filofaxes; since then banks have offered a plethora of presents from pizzas to cinema tickets, pairs of jeans to pairs of shoes.

The Halifax harks back to the old days by offering a free CD, but if the Halifax indie or dance compilation is not to your taste, then TSB and Lloyds offer the chance to choose your own tunes with vouchers for Our Price and Virgin respectively. Lloyds also throws in a Young Person's railcard, arguably the only gift that will outlast freshers' week.

Such is the competition, however, that the largest banks have plumped for raw cash come-ons. A spokesperson for Barclays says: "What students really want is cash."

Last year the NatWest gave you pounds 20, now it's a total of pounds 35 if you use its credit card. Midland is offering more - pounds 40 and pounds 10 credit on a BT chargecard. Barclays also offers a round pounds 50, assuming you take their credit card as well.

Students who can afford ethics can also choose the Co-operative Bank - known for its policy of not lending to various nasties. No freebies, however. Likewise the Royal Bank of Scotland is freebie-free.

But even pounds 50 extra beer money won't last long. Making friends with a bank is easy, but managing that financial relationship is the real university challenge. The average graduate ended up pounds 3,000 in the red this year. And with student grants continuing to be cut - to pounds 2,105 for London students this year, pounds 1,710 elsewhere - this autumn's freshers are unlikely to do any better.

Credit interest - for that all-too short-time before the grant cheque runs out - ranges up to 3.1 per cent (from the Halifax) or a slightly higher 3.25 per cent for students heading north of the border and banking with the Bank of Scotland.

But the interest rates on debt will be more important to most students. First-years can get interest-free overdrafts of up to pounds 1,000, final-year students up to pounds 1,500. Again, Barclays is at the most generous end, with the Co-op's and TSB's more restrictive limits of up to pounds 700.

Lloyds and Midland, for both of which pounds 900 was the maximum last year, are now offering overdrafts peaking at pounds 1,500. They both offer their highest limits to fourth- or fifth-year students - which in practice means the likes of medics and law students.

Once the interest-free overdraft limit is hit, students still stand to benefit from preferential rates of interest on authorised overdrafts. At the Halifax, for example, this is currently 6.2 per cent, while a number of others charge some percentage points above base rate (ABR). Base rate is currently 5.75 per cent, so Lloyds' and Midland's 1 per cent ABR means 6.75 per cent.

Authorised means exactly that - step beyond the agreed limit and you will be hit hard with punitive rates of up to around 30 per cent and even extra charges.

Banks do not publish standard limits for authorised overdrafts. Most will have student advisers who will want to see and hear budget plans and good intentions before agreeing a level. It may well be worth asking existing students which bank is most likely to offer the highest authorised limit before you make your choice.

For the rest of us, one question remains: why do students get all the breaks? The student deals are run at a loss, and get better every year, but the banks are willing to take the hit because they believe students make the most attractive customers in the long-term. The strategy is simple: catch them young and try to "build a rapport, help them through the rough times, and hopefully they'll stick with us in later life", as a Midland spokesperson put it. Banks want the most lasting relationship you make at university to be with them.

Freebies Interest if Interest-free Authorised Unauthorised

in credit overdraft overdraft EAR overdraft EAR

Barclays pounds 25 & pounds 25 2.00% Years 1-3 1% ABR 12% ABR

with credit pounds 1000-pounds 1500

card

Co-operative None 0.12% pounds 500 19.56% 32.92% & fee**

Halifax Free CD 3.10% Up to pounds 1000 6.20% 11.20% & fee**

Lloyds Railcard & 1% Years 1-5 7.40%APR 26.80% & fee**

pounds 20 voucher, pounds 500-pounds 1500

or pounds 30*

Midland pounds 40 & pounds 10 BT 2.23% Years 1-3 1%ABR 24.60%

chargecard* pounds 750-pounds 1500

Nat West pounds 20 & pounds 15 with 2% Up to pounds 1000 9.30% 33.80%

credit card

Royal Bank None 2.90% Years 1-3 3-6%ABR Max 29.80%

of Scotland pounds 600-pounds 1000 (negotiable)

TSB pounds 30 voucher 3.00% Years 1-3 6.25% 29.80% & pounds 3 per day

pounds 500-pounds 700

* Incentive offers available only to freshers.

** Fees: the Co-operative's are negotiable; Halifax charges pounds 10 if the overdraft runs for a calendar month; Lloyds can charge pounds 7 when the overdraft increases by pounds 10 or more.