Bank accounts for graduates: the good and the bad

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More than 230,000 students graduated this summer and the coming months will be some of the most important of their lives as they begin their careers and start to build for the future.

It's also a time when the reality of care-free student days hit home as the realisation dawns that the debts wracked up over the past few years have to be repaid.

While this is a daunting thought for many, there is no need to panic. Banks fight hard to attract new customers when students head off to university, but the good news is that the graduate current account market is also highly competitive so favourable terms, such as interest free overdrafts will continue for a few more years, giving you chance to get your finances in order.

Should you stick with the same bank?

However, the mistake a lot of graduates make is they simply stick with their current bank and move over to its graduate account.

There is no need to do this banks are eager to accept new graduate customers, and their debts, so shop around and get yourself the best deal. Also, not all banks offer graduate accounts - Halifax and Bank of Scotland don't for example.

Instead they continue their student terms for a year after graduation - graduates who bank with them should definitely look to move elsewhere as most graduate accounts run for three years.

How to choose the best graduate account

If you need a large overdraft If you have debts then look for the largest and longest-lasting interest-free overdraft.

In this regard, the Barclays Graduate Additions Account appears to be the most attractive as it has an interest-free overdraft of £3,000, with an unauthorised rate of 27.50%.

However, the terms of this overdraft are tiered meaning the maximum interest-free limit is reduced each year - in year two up to £2,000; in year three up to £1,000; in year four up to £500; and from year five onwards up to £200. This should help you clear your overdraft gradually.

There are several accounts offering interest-free buffers of £2,000 - the Royal Bank of Scotland (RBS) Graduate Royalties Account, the Abbey Graduate Current Account, the Lloyds TSB Graduate Account and the NatWest Graduate Account. Again these facilities are tiered and reduce each year.

Repaying an overdraft

While tiering may not sound that attractive a proposition it is actually a really good way of helping you repay an overdraft. A flat overdraft requires discipline because it is very easy to get used to that borrowing facility and never paying the overdraft down.

This can prove costly because once the graduate terms end you will suddenly be left with a very expensive debt. Authorised overdraft rates on standard current accounts are often between 15% and 19%.

Not all students leave university in debt. If you are fortunate enough to run your current account in credit most, if not all, of the time, then the in-credit rate and other accounts benefits are of great importance than the overdraft facility.

If you are regularly in credit

Not all students leave university in debt. If you are fortunate enough to run your current account in credit most if not all of the time, then the in-credit rate and other accounts benefits are of great importance than the overdraft facility.