Moneyfacts.co.uk – top 10 tips for graduates
Michelle Slade, analyst at Moneyfacts.co.uk, comments:
“On leaving university, searching for the best current account provider may be the last thing on many graduates’ minds. But by taking the time to shop around, they could find an account that suits their circumstances and also save some money into the bargain.
“There are only six UK providers of graduate finance, so choice is limited to the major players.
“Graduates will often remain loyal to their student account provider. However, as long as you have proof of qualification and have managed your account within your agreed overdraft limit, there is no reason why you shouldn't switch to a better deal.
“Debt is likely to be spread between Student Loans Company, bank overdraft, credit card and parents.
Top 10 tips for graduates
Sort out a monthly budget
“Once you graduate and start work, it’s a sensible idea to sit down and work out a monthly budget. It's probably the first time that you will have had a decent regular income, but at the same time you may have had to move to a new area for your new job and have additional travel and living costs. By actually working out how much money is coming in and how much is going out, you'll know how much is left over to put towards repaying your debts.
Work out a debt repayment plan
“Make a list of exactly how much you owe and plan to start reducing your debt. Most people will leave university owing a five figure sum, but be sensible about it. It doesn't all have to be paid off within 12 months, but then again you can’t ignore it and you should look to start making repayments as soon as you can afford to.
Don't rush to pay off your student loans
“Whilst these may well form the largest part of your debt, the interest rate is low (in line with inflation), and the whole idea behind these products is that you make repayments from your salary over your working life.
Check out how much you can borrow interest free on a graduate overdraft
“The Royal Bank of Scotland and Lloyds TSB Graduate packages both offer up to £2K free in year one, then £1.5K in year two and down to £1K in year three. Barclays Graduate Additions offers the highest interest free limit in year one at £3K, but this account charges you a £5 per month fee. However, the extra £1K interest free overdraft is worth £100 (at a typical rate of 10%) so paying £60 in fees over a year for benefits including mobile phone insurance is still worthwhile.
Check out the authorised overdraft interest rate
“Subject to credit approval, graduates may maintain their year one limit, but pay interest on the difference between this and their relevant year’s limit. With rates ranging from 9.9% (Royal Bank of Scotland and Abbey) to 18.8% HSBC, choosing carefully could make quite a difference financially.
Keep an eye on the unauthorised overdraft fees and interest rate
“Graduates’ incomes and expenditures can initially be rather erratic, which may on occasion result in unauthorised borrowing. This can be an expensive and should be avoided if at all possible. For example, Royal Bank of Scotland charges interest of 29.84%, and applies a penalty fee of £10 per month. A better deal can be found at HSBC, charging its standard interest rate of 18.8% and overdraft arrangement fee of £25. The £25 arrangement fee is refunded if it’s the first increase in your overdraft in six months.
Don't be fooled by incentives
“Unlike the student account market, where incentives are the often the main focus point for providers, marketing, only Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland offer incentives or benefits to graduates. But don’t be lured simply by the incentives on offer, as charges may soon eat away any initial gain. Remember, they only have any value if you are actually going to use them!
“Always look to repay your most expensive debt first. Once you have found work, give yourself six months (to start to build a decent credit rating) and then apply for a 0% credit card to switch some of your student debt to. The Virgin Money MasterCard is currently offering 0% balance transfers for 15 months, subject to a one-off 2.98% transfer fee.
Savings and pensions
“You can't really start any serious saving until you get your debts paid off, but it’s probably not a bad idea to set up a regular savings account to salt away money for annual bills such as car tax, MOT and Christmas. This will help you budget - a bit boring I know, but better than having to shell out a few hundred pounds from one month’s pay packet.
It's never too early to start saving for your retirement, so check out what your employer is offering. If you are very fortunate, you will be part of a final salary scheme, but more likely it will be a voluntary contribution scheme where your employer will match your contribution. Retirement may seem a long way off, but better to start early even if it is only £50 or so each month. It is tax efficient and will also save you having to contribute a fortune each month when trying to play catch up in later life.
“This is unlikely to be affordable unless you have managed to secure a job with an excellent salary, so you will probably be renting either alone or with friends. If you are looking for a mortgage, The Co-operative Bank and HSBC offer specific criteria and mortgage products for graduates. The other option is buying a property with a group of friends, this is a great way to get on the property ladder, but can be complicated if someone wants to move on or you fall out. You need to get an agreement drawn up by a solicitor to cover such eventualities.”
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