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Graduate bank accounts

Graduate bank accounts

Category: Students
Updated: 30/07/2018

Graduation day is a momentous occasion. It means that your student life is at an end – unless you continue into a postgraduate degree – and you are officially a graduate. It also means saying goodbye to your handy student bank account, and finding a suitable graduate account instead. To help, we've not only answered the most frequently asked questions about graduate accounts, but also included a selection of top accounts that you may want to consider.

On this page:

How do graduate accounts work?

Graduate bank accounts are mainly designed to help people adjust to a life without free overdrafts. As such, most will start you off with a generous 0% overdraft limit that allows you to be in debt on your bank account without interest or fees adding to the cost (unless you exceed the limit). Over time, this overdraft amount will shrink, which means you should be gradually reducing your debt until you don't have any left – before interest starts adding to it.

This means that you may be able to sit £3,000 in debt in the first year, £2,000 in the second year, and £1,000 in the third year before the 0% overdraft offer ends entirely. In many ways, this is the opposite of the tiered overdrafts that some student bank accounts offer.

This isn't the only positive aspect of these accounts, however. Even if you've already paid off your debt or never dipped into the red in the first place, it's still worth looking at graduate accounts, as you can get great perks such as in-credit interest on your balance or cashback on your spending.

Additionally, you may be offered a special deal on graduate loans or credit cards, giving you more ways to deal with any costs that come with post-student life. Note that these loans may not be as competitive as the graduate account itself, though, as a graduate overdraft is possibly the cheapest way to borrow at this stage. Therefore, always check the terms and conditions carefully before taking out a loan or credit card, no matter how enticing the bank makes it sound.

When and how can I open a graduate account?

Contrary to what you might expect, you don't need to open a graduate account straight after your graduation to be eligible. Most providers allow graduates who are a year or more out of university to still open a graduate account with them, some even up to three years later. However, as they are a natural extension to a student bank account, especially for those who are still in the red, you might not want to wait that long.

Indeed, your student bank account might automatically turn into a graduate account after you graduate, which could save you some effort. Just don't forget to check whether the deal you're getting is the most competitive one out there when you get switched over – but we'll get back to that later.

If you do decide to switch to a different provider after you graduate, you will need to check how long after graduation the provider of your choice allows you to open an account with them and provide proof of graduation (as well as the usual proof of identification and address) as part of your application.

Remember that your application will also require a credit check, so if you are worried about negatively impacting your credit score you'll want to make doubly sure that your first choice of account is the best choice. That way, you'll only need to apply once, provided the bank accepts.

How do I choose the best graduate account for me?

It's a good idea to check with your current provider first, to see what kind of benefits they can offer you on a graduate account. However, that shouldn't stop you from doing your research and comparing the graduate account market before you make your decision. Here are a few tips to help you find a suitable graduate deal:

  1. Loyalty doesn't pay

As with most financial products, being loyal to your current provider doesn't mean you're getting the best possible deal. Indeed, banks and building societies tend to offer the best deals to new customers, to try and get more customers. That's why you should never just stick with your current provider without looking around, and remember that switching bank accounts is fairly easy thanks to the Current Account Switch Service.

  1. Consider your needs

Different accounts will be better suited to different people. If you're still overdrawn but have a job ready to help get out of the red, you're in a different situation to someone who doesn't have a job yet and doesn't know when they'll be able to get out of their overdraft. In the latter situation, you'll need the 0% overdraft period to last as long as possible, with a generous amount of leeway, whereas if you don't have any debt you may want to compare graduate account benefits with what regular high-interest current accounts have to offer.

  1. Don't be swayed by short-term freebies

Related to considering your needs is not being tempted by offers such as gift cards or tablets – one-off treats that might see you miss out on the longer-term benefits that come with a generous overdraft, in-credit interest or cashback. When it comes to packaged accounts, which offer more longer-term benefits such as a package deal on a credit card or even free travel insurance (usually on a monthly account fee), it becomes more complicated to decide where you can find the most benefit. That's why it's always a good idea to do the maths.

  1. Remember your budget

Part of doing the maths is figuring out how much will be coming into your account every month and how that stacks up against your outgoings. You may have avoided getting into debt during your university days, but that doesn't mean you won't need a fee-free arranged overdraft now, especially if you're still job hunting or not living with your parents anymore.

Finally, a note to postgraduates who may qualify for student accounts as well as graduate accounts: look at the benefits of both (our list of student bank accounts can help with this) and remember that if you switch over to a graduate account now, you likely won't be able to restart your graduate countdown after the end of your course. Also keep in mind that some banks offer special postgraduate bank accounts that might just be perfect for your needs. As with everything, do your homework.

Compare graduate accounts

To help you compare graduate current accounts, here's a list of the ones that are currently available (table correct as at 24 July 2018):

Provider and account

Interest-free overdraft

Incentives

Bank of Scotland

Graduate Account

Year 1 - up to £2,000

Year 2 - up to £1,500

Year 3 - up to £1,000

  • (Available to existing student account customers only)
  • Free to register for Everyday offers and sign up for It's On Us
  • Earn up to 15% cashback from selected retailers
  • Commission-free foreign currency and traveller's cheques

Barclays Bank

Higher Education Account

Year 1 - up to £3,000

Year 2 - up to £2,000

Year 3 - up to £1,000

  • Earn cashback through Barclays SmartSpend
  • Blue Rewards is available as an add-on for £3pm

HSBC

Graduate Bank Account

Year 1 - up to £1,500

Year 2 - up to £1,000

  • Preferential savings rates and mortgage deals
  • Commission free foreign currency

Lloyds Bank

Graduate Account

Year 1 - up to £2,000

Year 2 - up to £1,500

Year 3 - up to £1,000

  • (Available to existing student account customers only)
  • Free to register for Everyday offers and sign up for It's On Us
  • Commission-free foreign currency and traveller's cheques
  • Earn up to 15% cashback from selected retailers
  • Commission-free foreign currency and traveller's cheques

Nationwide Building Society

FlexGraduate

Year 1 - up to £3,000

Year 2 - up to £2,500

Year 3 - up to £1,750

Year 4 - up to £1,000

  • (Available to existing FlexStudent customers only)
  • Simply Rewards - Earn cashback from selected retailers
  • No charges for using debit card abroad
  • Credit interest of up to 1% AER/gross available

NatWest

Graduate

Year 1 - up to £2,000

Year 2 - up to £1,000

  • Free tastecard membership
  • Free 24/7 Emergency Cash Service

Royal Bank of Scotland

Graduate

Year 1 - up to £2,000

Year 2 - up to £1,000

  • Free tastecard membership
  • Free 24/7 Emergency Cash Service

Santander

123 Graduate Account

Year 1 - up to £2,000

Year 2 - up to £2,000

  • (Available to existing student account customers only)
  • Earn up to 15% cashback from selected retailers
  • Access to preferential rates, exclusive offers and discounts at 123 World
  • Credit interest of up to 3% AER (2.96% gross) available

TSB

Graduate Account

Year 1 - up to £2,010

Year 2 - up to £1,510

Year 3 - up to £1,010

Source: Moneyfacts.co.uk, compiled: 24.07.2018

Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme up to a maximum level of protection of £85,000 per person per institution.

Disclaimer: this is a selection, not a Best Buy chart. All overdrafts are subject to the applicant's status. You may not be offered credit. All rates and fees are subject to change without notice. Please check all rates and terms before borrowing.

Moneyfacts.co.uk Limited is an independent credit broker, not a lender. We will receive a payment from credit providers where customers link to them from Moneyfacts.co.uk. None of these arrangements affect our independence.

What happens if I'm still overdrawn at the end of my graduate account period?

Graduate accounts usually last for about three years. Once your time is up, your provider will switch you over to a regular bank account. If you're still in the red at this time, you'll have to start paying interest and/or fees (depending on what the provider charges), which could become quite costly.

Many customers may not pay attention to the overdraft charges that occur after the graduate account turns into a regular current account, or even the charges that come with unarranged overdrafts; after all, they never intend to exceed their limit or stay in the red longer than necessary. However, when you do find yourself in a regular account with a high interest rate to pay on your debt, don't panic.

While your first instinct may be to switch to a better deal, remember that if you're not careful, this could damage your credit rating. Make sure your credit score is good enough to be accepted first – rejected applications will appear on your credit report
– and that the new account offers a large enough overdraft for your needs. Alternatively, you could consider a credit card with an introductory 0% interest on money transfers (see our credit card search page to find the best deals). This will allow you to transfer your debt from your current account to a credit card and give you a little longer to pay it off.

Even with such a deal, it's better to get out of the red, and stay out of it, as soon as possible. Once you're no longer a student or recent graduate, it'll be much harder to find a cheap way to get into debt, so this would be best avoided altogether. It may take some time to get used to budgeting tightly and keeping a careful watch of your current account balance, but it can save a lot of stress and high fees for the rest of your life.

What next?

Discover more graduate tips in our graduate money guide

Don't think you need a special graduate account? Search through all available bank accounts to find the right product for you

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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