Choosing the wrong student account could cost new students GBP630, according to new research from HBOS-owned Halifax.
Many budding students choosing where to open there new bank account are often blinded by free gifts, which Halifax claims is a false economy and students may be better off actually purchasing the free gift than letting it sway them into opening an account.
The UK lender claims that free gifts, such as an iPod Shuffle or MP4 player are not worth taking because of the smaller interest-free overdrafts offered alongside them. Of the current student bank accounts on offer, three major players in the market offer free gifts: HSBC, Lloyds TSB and Nat West.
Halifax claims the free gifts on offer are worth a maximum of GBP100 but the actual ‘cost of lending’ which a student faces is much higher due to lower interest-free overdraft limits.
Its research claims the gap between the interest-free limits, up to GBP1,750 in a year, is lending that students would have to finance through some other means, which can often involve high rates of interest through the use of credit cards which charge around 15% EAR.
Halifax calculated that an extra GBP1,750 financed through credit card spending would cost GBP262.50 over a year. The cost of this lending is significantly higher than the value of any of the free gifts offered with student bank accounts.
The lender concluded that, assuming students pay a rate of 15% EAR for the cost of additional lending up to the interest free limit offered by Halifax and Bank of Scotland compared to competitors, students could be paying much more interest over their degree course – in some cases as much as GBP675.