Overdrafted and Underpaid: The Terrible Truth About Overdrafts


Photograph: Tyler McNally

One thing you really will learn at university is the value of money. From budgets, to longingly looking at things you can’t afford, to bank balances as terrifying as Freddy Krueger in a hair salon, money will be an important part of your life as a student. Something you will need to learn about is overdrafts. Overdrafts are pools of money banks provide when your funds have dried up. They can be anything from a few hundred to several thousand pounds. The Queen Mother reputedly had an overdraft worth £4 million, but it’s a safe bet that as student yours will be substantially smaller.

The most important thing to realise is that an overdraft is NOT free money. For all intents and purposes, a student loan is free money. Yes, you get saddled with thousands in debt, but it isn’t real debt like a mortgage or an unpaid tax bill. It’s something that you don’t have to worry about paying back until you earn enough. Overdrafts are a whole different kettle of fish, because if misused, they really can become the stuff of nightmares.

They are products sold by the bank, and if there are any customers a bank well and truly cherishes, it’s their students. We are the epitome of consumerism. We can’t resist the latest Apple product, or tickets to gigs, or having enough cash to buy everyone a shot on a night out. We would do almost anything for a bit of extra cash, and the banks know it. We have juicy loans coming into our accounts regularly over three years, and all we want to do is spend. We are perfect for banks to sink their claws into.

But it isn’t all doom and gloom. Because we are treasured customers, there are oodles of student accounts to pick from. In Northern Ireland we have banks falling out of our ears, fro

m Southern banks to British banks to banks with Lewis Hamilton on the front; it’s a smorgasbord ripe for the picking. All you need to do is shop around and do research, and you’ll find an account perfect for you.

Firstly, make sure you know what the terms surrounding a bank’s student overdraft facility are. It may seem a long way off, but overdrafts can, and will, affect your credit rating. Students have also reported some banks automatically altering the terms of their accounts after three years, assuming they’ve already graduated, shortening the length of time they have left to pay off their overdraft. Some banks give a year, others until you reach twenty-seven. Banks also have the right to issue a ‘repayable on demand’ notice, meaning that just weeks after you graduate, they can demand your overdraft be paid back, with interest. And interest on student accounts once the interest free period has expired can be in the region of 17%.

The most crucial thing you can do once you’ve chosen your bank account, is to know how much money you have and budget, budget, budget. It’s about as much fun as Applied Maths, or trying to use QSIS, but it has to be done. From counting out the pennies for groceries, to being stingy when it comes to birthday presents: it may seem mercenary, but it will help you survive your time as a student.

Overdrafts are something you will have to cope with for the rest of your adult life, unless you win the lottery. But they don’t have to be something to stress out about too much. Sensible spending, budgeting and making sure you know the terms of your student account inside out will mean you make it to graduation without too many sleepless nights. And if you do find yourself worrying, just remember: that loan is coming.

Photograph: Tyler McNally