Making a stand against banking giants can be well worth it, as new graduates that bank with HSBC are finding out.
Like most graduates, when I left university I had a pretty hefty overdraft that needed to be paid off. Fortunately, as my student account became a graduate account my overdraft's 0% status remained, meaning I was given some time to repay my debt, safe in the knowledge that it wouldn't increase. But is this the case for today's young graduates?
In a somewhat controversial move one of the so-called big four banks, namely HSBC, decided it was going to scrap its three year, interest free overdraft deal for this year's graduates, and instead charge them interest on their borrowings at 9.99% APR, or alternatively make them pay a £9.95 monthly fee (existing graduates were exempt). What's more, new graduates were only informed this summer, with the bank giving them just 30 days to repay the debt or risk being charged. Blimey!
Unsurprisingly, graduates and students reacted furiously, accusing HSBC of "outrageous behaviour" with many deserting the bank. What's more, they even set up an online protest on social networking site Facebook, entitled "Stop the Great HSBC Graduate Rip-Off!!!" with nearly 5,000 members calling for a boycott of the bank.
The National Union of Students was also planning a more traditional protest outside the bank's headquarters in Canary Wharf next week.
But students and graduates can instead celebrate, as the banking giant has today bowed to the pressure and announced that it has frozen plans to begin charging interest on overdrafts of up to £1,500 for this year's graduates. What's more, anyone that has been charged interest already will get this refunded. Hurrah!
Students typically open a bank account when they start college or university that offers a 0% overdraft facility. These student accounts are then automatically switched into graduate accounts once your course finishes, and most banks maintain the 0% overdraft for a further three years.
Banks tend to reduce the maximum 0% overdraft graduates can have each year (typically £1,500 in the first year, £1k in the second and £500 in the third) to encourage them to have pretty much paid the whole lot back in the three years -- after which time they'll start to be charged.
And of course, they don't do this out of kindness. Students and graduates are well known to be a lucrative market for the banks, who know that if they can lure us in at a young age, a good number of us will be unlikely to switch in the future when we're big earners (hence the incentives offered at Freshers' Fairs) which does make HSBC's idea a little surprising.
However, the bank seemed to think differently. Indeed, it claimed a number of its graduates were taking advantage of interest free overdrafts with a range of different providers with no intention of having a "long term relationship" with HSBC. What's more it reckoned there were high levels of bad debt on these accounts, due to graduates running up overdrafts and then "disappearing".
Students and graduates behind the campaign should indeed be celebrating their victory, and the fact they got HSBC to admit that it was not "too big" to listen to its customers. It's good to see that pressure from customers can make banks rethink and overturn decisions. Good for them!
However, it's worth remembering that overdrafts, even 0% ones, will have to be paid back at some point or risk being charged interest. If you're a graduate with a 0% overdraft, by all means take advantage of the borrowing -- but remember to stash away the cash needed to repay it in a high interest account each month. That way you'll have the sum required to repay it when the time comes, and you'll have earned some interest for yourself at the same time.