The best and worst student accounts
Students will owe thousands more than they need to borrowing from the wrong bank, writes Louise McBride
With Freshers' week kicking off in many colleges around the country tomorrow, students are at risk of paying thousands more to borrow money than they need to - if they open the wrong bank account.
Banks often target students during Freshers week - but the perks being offered to lure students over are only worth a fraction of the interest they'll be hit with should they go for an expensive bank.
So forget about free flights and free vouchers when choosing your student bank account. Instead concentrate on how cheaply you can get money out of your bank - because with college bills running into the tens of thousands, chances are you will need to borrow money at some stage.
With this in mind, the Sunday Independent examined what the various banks have on offer for students. We found that AIB is the best bank to do your student banking with - followed closely by BoI. KBC Bank and Permanent TSB should be avoided, however.
CHEAPEST STUDENT LOAN
AIB: Borrow €10,000 for free
AIB offers the cheapest student loan - if you're the vet or dentist of the future.
You can borrow up to €10,000 interest-free from AIB over five years if you're studying medicine, dentistry, veterinary science, pharmacy, psychology, physiotherapy, radiography, law, science, mathematics, architecture or computing. As well as being tied to certain courses, these loans are only available to students in certain colleges - University College Dublin, University College Cork, NUI Galway, NUI Maynooth, University of Limerick, Trinity College Dublin, Dublin City University, Dublin Institute of Technology and the Royal College of Surgeons. As long as the loan is fully repaid within five years, you won't be charged any interest.
BoI has two interest-free student loans. The larger loan - of up to €7,500 - is offered to students in their last three years of college who are studying medicine, dentistry, veterinary science, pharmacy, accountancy, IT, telecoms or engineering (non-civil). These students can borrow up to €2,500 a year interest-free for three years. As long as the loan is repaid within three years, no interest is charged - otherwise, the interest rate is 9.7pc.
BoI's smaller interest-free loan - of up to €1,500 a year - is available to all students, regardless of discipline. It is, however, a fraction of the loans offered to the students in AIB's and BoI's preferred courses. You must repay the loan in full within a year.
KBC, Permanent TSB and Ulster Bank don't offer interest-free loans.
MOST EXPENSIVE STUDENT LOAN
KBC: Costs almost €2,000 to borrow €5,000
KBC Bank is the most expensive bank to borrow money from if you are a student. It doesn't offer any interest-free loans or overdrafts - and as it doesn't offer special student loans, students get hit with the same interest rate as anyone else who takes out a personal loan with the bank. You could pay as much as 15pc interest if getting a personal loan of less than €5,000 from KBC; 12pc if borrowing more than €20,000. Borrow €5,000 and you'll pay €1,853 in interest over five years. KBC charges less interest on its personal loans if you have a current account with the bank - but at 12.8pc on personal loans of less than €5,000 and 9.8pc on loans above €20,000, that 'discounted' rate is still expensive.
Permanent TSB and Ulster Bank fare poorly here too. Permo doesn't offer personal loans to students - though it does offer personal loans to parents to help them fund a child's college education. Permo's parental loans, however, are still the most expensive on the market.
Ulster Bank charges 10.3pc interest on its personal loans, which makes it the second most expensive lender for students.
Personal loans on which you don't get a good student discount are best avoided as they are expensive - regardless of the bank. A student who wants to borrow €10,000 from AIB for example will be hit with a 10.33pc interest rate - if he's not studying one of the courses which makes him eligible for an interest-free loan. So in this case, AIB is as expensive as Ulster Bank is for student loans - and not far behind KBC.
CHEAPEST PARENTAL LOAN
BoI: Costs €119 a year to borrow €3,000
As the student contribution charge is now €3,000 a year, many parents have to borrow that money to get their children through college. Most banks now offer loans to parents to help them cover the cost of these fees - and other college bills. BoI offers the cheapest such loan. It charges 7.5pc interest on its college finance loan where parents can borrow up to €3,000 each year - over four years. That adds up to €119 in interest a year - or €476 for the four years.
AIB's parent student finance loan, which charges 8.73pc interest, is the second-cheapest parental loan on the market. Under this loan, parents can borrow up to €25,000 over 12 years. Best to repay this loan early though. You would pay almost €15,000 in interest if you repaid €25,000 over 12 years - but less than €6,000 in interest if you repaid it over five years.
AIB also offers a loan to students to cover the student contribution charge. That loan - of up to €3,000 a year for four years - has an interest rate of 8.76pc. This is much cheaper than borrowing that money through a standard personal loan - but it is still more expensive than BoI's college finance loan. Students who take out an AIB loan to cover the contribution charge can ease the blow that the repayments make to their pocket while in college by repaying the interest only on the loan. However, if you can, repay the loan in full each month rather than the interest only - otherwise, that loan will be more expensive in the long run and you will also have a large loan left to clear when you leave college.
MOST EXPENSIVE PARENTAL LOAN
PTSB: Costs €223 a year to borrow €3,000
Permanent TSB offers personal loans to parents who wish to fund their child's third-level education. However, at 14.3pc interest for loans of between €1,500 and €6,999, Permo offers the most expensive loan. At this rate, it would cost €223 to borrow €3,000 over a year - that's almost twice as expensive as BoI's college finance loan. Permo charges less interest the more you borrow.
Ulster Bank is the second most expensive for parental loans. KBC doesn't offer parental loans.
CHEAPEST STUDENT OVERDRAFT
Ulster Bank: Costs nothing to borrow €2,500
Ulster Bank offers the cheapest overdraft - but only if you're studying the right course. You can get an interest-free overdraft of up to €2,500 from Ulster Bank if you're studying medicine, dentistry, law, accountancy, pharmacy, physiotherapy, veterinary science and optometry. Otherwise, you can get an interest-free overdraft of up to €1,500 from the bank. You must repay the overdraft within one year of finishing college.
AIB also offers interest-free overdrafts. Students in third- and fourth-year can go into the red by 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.
BoI, KBC and Permanent TSB don't offer interest-free overdrafts so avoid going into the red if you're with one of these banks as the interest charged on overdrafts is high. Permanent TSB, for example, charges 17.7pc interest on overdrafts.
Be careful too not to exceed the limit on an interest-free overdraft as you will be hit for interest should you do so.
CHEAPEST CREDIT CARDS
BoI: Costs nothing to borrow €850 - for the first six months
The cheapest student credit cards are offered by BoI and AIB - but only if you're quick repaying your bill.
BoI's student card offers six months interest-free credit on purchases - which means you can buy things with your credit card for the first six months without clocking up any interest. You'll be hit for 18.1pc interest after that so be sure to clear your bill and to stop using your credit card once the six months are up. Run up a €1,500 credit card bill and once interest kicks in, that bill will climb to €1,669 after one year. So the interest will be more than a 10th of what you borrowed. The interest charged when you use your card to withdraw cash is even steeper, at 26pc.
AIB's student credit card is cheaper to use for the first year than a normal credit card is. You're charged 3.83pc interest on purchases for the first year - but after that 20.3pc interest is charged.
The credit limits (that is, the most you can borrow) on student credit cards are low. With Bank of Ireland's credit card, the credit limit is €400 for first- or second-year students; and up to €850 if you're in your third year. AIB's student credit card has a credit limit of €600.
MOST EXPENSIVE CREDIT CARD
Ulster Bank: Double digit interest from Day One
Ulster Bank's student credit card doesn't offer any interest-free or discounted credit for an introductory period. You pay 17.1pc interest on purchases and 21.1pc interest on cash withdrawals once you start using your card. So avoid using this card as the interest will build up very quickly. The credit limit on Ulster's card is €450.
Low credit limits work in your favour because it is best to avoid credit card borrowing as a student. A low credit limit should discourage you from borrowing too much - though you should watch out for any penalties that you're hit with should you go over that limit. These penalties can be as high as €8.50 a pop, depending on your bank.
KBC and Permanent TSB don't offer student credit cards though a spokeswoman for KBC said the bank plans to launch one shortly.
Don't overlook credit unions when borrowing money for college as they may offer much cheaper loans than your bank. A typical credit union student loan charges about 6pc interest, while the average education loan has an interest rate of 6.55pc. Interest rates vary by credit union, however.
Perks shouldn't come into your decision when choosing your bank. However, it's a bonus to have one - if your bank of choice happens to offer one. AIB offers a student Leap card voucher worth €12 - and the chance to win prizes worth €150. Those who take out a student credit card with AIB get the chance to win a trip for two to the Rugby World Cup next month.
Bank of Ireland offers rewards worth €100 for using its student account, including ice-skating passes, surf lessons, free pizza and cinema passes. KBC offers the choice of €100 in cash or two free return flights from Dublin to Berlin, Liverpool, London, Amsterdam, Madrid, Paris, Milan, Frankfurt or Brussels. Permanent TSB and Ulster Bank don't offer student perks.
As the maintenance fees on current accounts can be as high as €48 a year, 'free banking' is one of the big perks of student accounts. All of the banks offer 'free' banking to students - so students aren't charged account maintenance fees. Free banking also covers standard transaction charges, such as withdrawals, lodgements and standing orders. However, there are still a lot of transactions which students are charged for - including charges for not having enough money in your account to clear a direct debit or standing order. Such charges can be as high as €10 a pop.
You will also be hit for transaction fees if you use your debit or ATM card outside the eurozone. These fees can be as high as 3.5pc of the value of the transaction, depending on whether you use your card to buy something or to withdraw cash.
MANAGING YOUR MONEY
For many students, college is the first time they live away from home. That presents many financial challenges - not least, the rent. The average rent for a one-bed apartment in Dublin 2 is €1,360; the typical rent for a four-bed home in Dublin 2 is €2,260, according to daft.ie.
This isn't just a Dublin problem - rents are climbing in most counties, including Kildare, Cork, Galway and Louth.
Take a realistic approach to renting. It is usually cheaper to rent in a less-sought-after location and to either house share or rent a room in a house.
Don't live too far out from college, however, as you will face higher commuter costs should you do so.
Learn to budget whatever income you get. Be sure you can cover the cost of rent, bills, food, clothes, travel and social life - these expenses could clock up to €1,300 a month. You may need to take up part-time work to generate income. Grab any discounts you can - it is worth having a USIT card and student Leap card for this.
Learn to cook because unless you're loaded, you can't afford to eat out all the time.
Steer clear of expensive debt, such as credit cards or moneylender loans, as these will come back to haunt you.
Sunday Indo Business