Money news, advice and predictions for savers and spenders.
By Jeremy Gates
Three years from now, hundreds of thousands of the students who have collected record A-levels will be clutching a university degree - and possibly facing debts of £22,000 as the bill for improving their chances of a well-paid job.
It's a daunting challenge, especially as many graduates are now struggling to find any work after a credit-crunch summer. Will a new generation of penny-pinching students cut the booze and trim spending?
A survey by Lloyds TSB found that 31% of 17-25s starting university this autumn will live at home, while 47% think they are the most "financially disadvantaged" for many generations.
"Students-to-be are telling us that they are concerned about managing their finances during their degree course and that, in the current environment, money management is more important to them than ever before," says Lloyds TSB director of accounts Catherine McGrath.
Kevin Mountford, head of banking at moneysupermarket.com, is less convinced that attitudes are changing.
"I don't see students worrying about the future and trying to cut expenditure," he says. "They live for today and simply accept that when the time comes to leave, they will carry a sizeable debt with them."
A degree is invariably worth it in the long run. Student website push.co.uk reckons graduates earn anything between £54,000-£400,000 more over a lifetime than non-graduates.
Student Finance England, which administers the grants system, says it wants to make financial arrangements easier to understand this year.
Lloyds TSB is launching a 'Savvy Student Hub' to improve financial awareness from the start. It promises tips to cut the living costs and find discounts, and includes a 'budget cook-off' to show how to cater for a dinner party on a tight budget.
Perks of the Lloyds TSB Student Account include commission-free money and travellers cheques, free YHA membership and savings up to £75.99 on AA driving lessons.
"Much of the debt problem arises from accommodation costs," says Andrew Hagger at Moneynet.co.uk. "Students who live at home might miss something, but their costs are invariably much lower."
Anybody starting a full-time higher education course this autumn qualifies for a student loan to cover tuition fees in full (up to £3,225) and a loan for maintenance (up to £4,950). Depending on parental earnings, they might also qualify for a special support grant (up to £2,906), and even a bursary (at least £319 a year).
Students can check their entitlements on www.direct.gov.uk. If you aren't going to your first-choice university, Student Finance England will have to reassess your entitlement.
Next, students need to open a bank account to take the grant cheque each term. There's 17 at present, although most students will choose from around a dozen.
'Perks' are plentiful, but are only worth much if they match your lifestyle. The RBS Student Royalties Account offers discounts at selected retailers, two-for-one cinema tickets and 10% off flights and holidays booked through its membership services.
Because most students live on credit, however, the overdraft limit is all-important, says Michelle Slade at moneyfacts.co.uk.
"Although Halifax offers the highest level of overdraft, up to £3,000 from year one, there is a certain discipline in rival accounts operating a tiered system, with the level of interest-free borrowing increasing each year and higher levels only available in year four and five," she says.
Abbey's Student Account offers a £50 cashback on every account opened and an in-credit interest rate of 2% for the first £500. It will give away £50 an hour, on the hour, for the whole of September in a 'Money for nothing' prize draw open to customers and non-customers.
HSBC offers 2% on balances up to £1,000 (in the first year only) and an interest-free overdraft up to £2,000.
An "improved" Student Additions account from Barclays includes mobile broadband through Orange at 25% off normal monthly cost and free USB modem, while a 'contactless' VISA debit card allows transactions of £10 or less by holding it over a card reader and removes the need to remember a PIN. Might be useful on a heavy night at the Student Union.
But Mountford warns against being seduced by headline rates and flashy giveaways.
"The value of freebies is very low compared to interest-free overdrafts, so students must choose an account for the right reasons," he says.
One 'perk' which does look useful, particularly for students making a long rail journey home, is a five-year Student Railcard free from NatWest, which would normally cost £130.
But Hagger says the vital message for any 18-year-olds handling four-figure sums for the first time is: "Don't take a credit card, unless it is essential.
"The limit is unlikely to be high anyway, but the last thing you need is monthly statements demanding regular payment. Unless you have the cash to clear the account in full, you could face interest charges approaching 20% APR.
"Try to forget about cards until you have a regular salary."
Here some other useful tips from the experts:
:: Construct a simple budget, to keep income and outgoings roughly in balance. Set a weekly allowance for food shopping and cash for going out, and get into the routine of drawing an allowance each week.
:: If you pass your overdraft limit, try for a loan from the 'Bank of Mum and Dad'. Parents getting minimal interest on savings - barely 3% - might accept a similar dividend from their offspring, or even less.
:: Get a bank account with an interest-free overdraft limit.
Hagger says: "If you could borrow an additional £1,000 interest free, this saves £99 per year compared to the student bank account charging interest at the rate of 9.9% for authorised borrowing."
:: Avoid unauthorised overdraft charges - rates can approach 30%. Use online banking to check your account isn't in dangerous territory.
:: If you do have have a decent credit balance when your student loans arrive, don't expect much interest on current accounts. Abbey and HSBC both offer 1.98%, while Alliance & Leicester's instant-access online pays 3.15%.
Spare money might be parked temporarily in better-paying accounts.
:: If financial pressures mount, speak to the bank and seek expert advice before things get serious. In bank branches on campus, a student specialist may be able to help.
:: Don't forget to insure valuable things, particularly electrical goods like iPods, laptops and digital cameras. Get specialist cover in place before you hit the campus.
Says Simon Burgess at British Insurance: "Most students shouldn't take more than £1,000 of goods to university, and the premium for that is £10 per year. Student insurance is terribly important when stuff gets nicked."
:: Get a TV licence to avoid a fine. Watching in halls of residence is free, but if you have a TV in your own room, you could face a £1,000 fine if there is no licence.
:: Always protect your credit rating: if you share a house, your name may be listed as the person to pay bills, and your credit rating can be hit if a housemate fails to pay his or her share.
Equifax, a leading credit information provider, says students should check their credit report once a year to guard against ID fraud.
:: Information: student bank accounts are compared in detail on www.moneysupermarket.com; www.Moneynet.co.uk; and www.Moneyfacts.co.uk.
Check your entitlement to student support on www.direct.gov.uk.
Personal credit reports can be checked at sites such as www.callcreditcheck.com and www.equifax.co.uk.
British Insurance: 0870 240 3946 and www.britishinsurance.co.uk.
Poundnotes
:: For over-50s savers, cash ISA limits rise from £3,600 to £5,100 on October 6, which might be why Abbey and Bradford & Bingley Savings launch a new fixed-rate ISA paying a market leading 3.50% on September 7.
It matures on October 1, 2011, with no withdrawals permitted until then. Applications can be made at local branches, with all further transactions done by post.
It will be interesting to see if rivals improve on this over the next month.
:: The new mortgage range from HSBC includes a 1.99% two-year discount loan, available to customers with minimum deposit of 40% of property value.
Customers with a 25% deposit can get a two-year discount mortgage at 2.49%. Both loans have arrangement fees of £1,199 and are discounted from HSBC standard variable rate (3.94%).
Andrew Hagger at Moneynet.co.uk warns: "The booking fee looks pretty hefty for a short-term deal, and adds the equivalent of £50 per month to costs.
"But this aggressive move by HSBC might shake up what has become a rather stagnant mortgage market. It will be interesting to see if the offer gets oversubscribed, and gets pulled within a couple of weeks."
Geoff Tresman at Punter Southall Financial Management points out: "While the media hails this as a very positive sign in the mortgage market, it will benefit a very small proportion of people. In the short term, it will be virtually meaningless."
:: There was a massive surge in demand for Turkish lira among travellers in June-August 2009, with demand up 51% on the same period in 2008, according to the Post Office, which has carved a 25% share of the overseas currency market.
However, the Post Office says long-haul destinations showed the biggest surge in demand during our summer holidays: Kenyan shillings showed a 73% jump, followed by South African rand (59%) and Indonesian rupiah (54%).
The Post Office says the euro still accounts for over 75% of its currency sales.
:: Want to bet where house prices go from here? Both Abbey and Alliance & Leicester have unveiled a range of guaranteed investment products for savers who want the security of a capital guarantee with a minimum return, provided they are held for the full term.
On a minimum £1,500 investment, a Guaranteed Growth Plan maturing in July 2013 guarantees a minimum 7% gross return, with maximum return of 50% of the growth of the Halifax House Price Index. If house prices have turned, this could be interesting.
The ISA option applies only to plans running for 5.5 years.
:: High-five savers:
Phone No Rate Account Period Deposit Interest paid
West Bromwich BS www.westbrom.co.uk 5.45% (F) E Bond 32 31/07/14 £5,000 Yly
Aldermore 01372 736700 5.40% (F) Fixed Rate Bond Five Year Bond (P) £10,000 Qly
Manchester BS 0161 923 8015 3.26% Premier ISA 45 Issue 1 45 Days £1,000 Yly
First Save www.firstsave.co.uk 3.25% 90 Day Notice 90 Days £5,000 Yly
Nottingham BS 0845 155 6330 3.15% Postal Access 50 50 Day (P) £1,000 Yly
:: Top-five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 1.99% discounted for two years 60% £1,199 Yes
First Direct (Rem) 0845 610 0100 3.09% variable for term 80% £999 Yes
Co-operative Bank 0800 633 5286 3.24% to 30/09/12 75% £995 Yes
ING Direct (UK) 0845 603 8888 3.29% for term 75% £595 Yes
NatWest Mortgage Services 0800 587 6599 3.69% to 31/10/11 75% £799 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
