Friday 9 December 2016

Your Money: Free college account? You can't bank on it

Student bank accounts with their 'freebies' could cost your child hundreds a year

Published 11/09/2016 | 02:30

As Freshers' week kicks off in many colleges around the country tomorrow, the parents of fledgling students should warn their children not to be lured by offers of free pizza, cheap takeaways, summer festival packs or cash bonuses when choosing a student bank account
As Freshers' week kicks off in many colleges around the country tomorrow, the parents of fledgling students should warn their children not to be lured by offers of free pizza, cheap takeaways, summer festival packs or cash bonuses when choosing a student bank account

Many of the students starting college this year will find it more expensive to borrow money because two of the country's top banks have rowed back on cheap student loan offers.

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AIB no longer offers interest-free loans of up to €10,000 to certain students - such as medical and pharmacy students. This loan, which was available last September, was one of the best student loan offers at the time.

In September 2015, Bank of Ireland (BoI) offered an interest-free loan of up to €1,500 to all students, regardless of discipline. This has since been replaced with a smaller loan of up to €1,000 - which charges 1pc interest.

Although the banks have stepped up in their efforts to entice students to do business with them by offering cheap gimmicks, some of the offers that really mattered - such as interest-free loans - have been pulled or watered down.

So as Freshers' week kicks off in many colleges around the country tomorrow, the parents of fledgling students should warn their children not to be lured by offers of free pizza, cheap takeaways, summer festival packs or cash bonuses when choosing a student bank account. Instead advise them to choose a bank which won't fleece them with bank charges or interest. The Sunday Independent examined what the various banks have on offer for students. Here's what we found:

Cheapest student loan

BoI: Borrow €7,500 for free

BoI is the only bank offering interest-free student loans this year. Its preferred faculty loan allows students to borrow up to €7,500 interest-free. However, to be eligible for the loan, your child must be studying medicine, dentistry, veterinary, pharmacy, accountancy, science, law, commerce, computing (including business information systems) or engineering (non-civil). Once they reach second year, these students can borrow up to €2,500 a year interest-free (up to the maximum of €7,500). As long as the loan is repaid by the time the course is finished - or within one year of graduation, no interest is charged. Otherwise, the interest rate charged is 9.7pc.

BoI also offers a smaller loan of up to €1,000 a year which charges 1pc interest. This loan, which must be repaid within a year, can be used to fund a student's travel, living and back-to-college expenses. It is available to all students, regardless of discipline.

Most expensive student loan

PTSB: Costs €1,447 to borrow €7,500

Permanent TSB is the most expensive bank to borrow from if you're a student. It doesn't offer student loans as such - however, as long as a student can prove the ability to repay a loan, it will offer its standard personal loans to them. These loans are among the most expensive available. The interest rate charged is between 10.5pc and 14.3pc, depending on the size of the loan. A loan of €7,500 would attract an interest rate of 12.5pc. This loan would cost a student €1,447 in interest over three years - as opposed to the BoI interest-free loan of €7,500, which would cost a student nothing.

KBC and Ulster Bank are the only banks which don't offer personal loans to students.

Discourage your child from taking out a student loan unless it is interest-free or comes with a major discount - otherwise, that loan will be expensive and your child could struggle to repay it. Should your child fall behind on loan repayments during his student years, this may affect his credit rating later on - and his ability to get a mortgage or car loan. Even if your child can get an interest-free loan, be sure he can repay that loan before the bank starts to charge interest on it. Remember too that you may have to act as guarantor on the loan - which could see you having to repay the loan if your child can't.

Cheapest credit card

BoI: Costs nothing to borrow up to €1,000 - for the first six months

BoI offers the cheapest student credit card - but only if a student repays what he has borrowed within six months of taking out the card and has not used the card to withdraw cash. BoI's student card offers six months interest-free credit on purchases - which means a student can buy things with the credit card for the first six months without clocking up any interest. After that however, the student will be hit for 20.2pc interest so be sure to tell your child to clear his credit card bill before those six months are up. The credit limit on the BoI card is €500 for first- and second-year students and €1,000 for students in third or fourth year. BoI is also the only bank which doesn't charge an over-limit fee (charged if a cardholder exceeds his credit card limit) on its student credit card. Over-limit fees with other banks can be as high as €8.50 a pop.

AIB offers the second cheapest student credit card. It charges 3.83pc interest on purchases for the first year - but after that 20.5pc interest is charged.

Discourage your child from getting a credit card - even if it offers free credit for a few months. Using a credit card to borrow money is a bad and expensive habit to get into and could lead to debt problems down the line.

Cheapest student overdraft

Ulster Bank: Costs nothing to borrow €2,500

Ulster Bank offers the cheapest student overdraft - if your child is studying the right course. Students can get an interest-free overdraft of up to €2,500 from Ulster Bank if they're studying medicine, dentistry, law, accountancy, pharmacy, physiotherapy, veterinary science or optometry. Otherwise, students can get an interest-free overdraft of up to €1,500. To get the maximum overdraft, students must be receiving a student grant.

AIB also offers interest-free overdrafts. Students in third and fourth year can get an overdraft of up to €1,500 without getting hit for interest, while students in first and second year can get interest-free overdrafts of up to €1,000.

Should your child run up a higher overdraft than the interest-free limit - or go into the red without having an overdraft in place, he will get hit for high interest.

AIB for example charges 24pc interest on unapproved overdrafts. This is very expensive credit and is higher than the interest charged on most credit cards so be sure to explain to your child that it is important he sticks within his overdraft limit. BoI, KBC and PTSB don't offer interest-free overdrafts.

Most expensive credit card

KBC and Ulster Bank: Double-digit interest

KBC and Ulster Bank don't offer any interest-free or discounted credit for an introductory period - so a student is charged double-digit interest rates on credit card purchases once he starts to use either card. KBC is the more expensive of the two - it charges 18.25pc interest on credit card purchases while Ulster Bank charges 17.9pc interest. At €8.50, Ulster Bank has the highest over-limit fee, followed by KBC and AIB which both charge €7.

PTSB doesn't offer a student credit card.

Sneaky charges

All the banks offer free banking to students. This covers account maintenance fees (which otherwise can cost up to €48 a year) and typical transaction fees (such as fees for direct debits, cash withdrawals and lodgements).

There are a raft of other charges, however, which your child could get stung for. The worst of these arise when there is not enough money in the student account to clear a direct debit, standing order or cheque. Your child will get hit with a charge of either €10 or €12.70 each time this happens. Furthermore, should a direct debit or cheque trigger an unauthorised overdraft on the account, referral item fees of either €4.44 or €5 a pop may kick in.

Simple things like bank drafts could also catch your fledgling student out. AIB for example charges €7 for a foreign currency bank draft - almost twice what Ulster Bank charges.

KBC is the only bank which charges students for the replacement of a lost or stolen bank card. The charge in this case is €6. Although BoI will replace a lost or stolen card for free if it is the first time the card has been mislaid, it charges €8 thereafter.

Student banking can be a minefield: make sure your child doesn't walk into it blindly.

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