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Aug 30, 2006
With many banks offering free gifts to
students who sign up for new accounts, Halifax
warns students on the possible financial implications of these promos.
According to the UK bank, students may be
better off buying their own iPod rather than taking a bank account offering one
as an incentive. Free gifts such as an iPod Shuffle or an MP4 player are not
worth taking because of the smaller interest-free overdrafts offered alongside
them. Halifax
says these "free gifts" are worth around a maximum of £100, but the
actual “lending cost” a student faces is much higher due to lower interest-free
overdraft limits. Halifax’s
own research suggests that students could be hundreds of pounds better off over
the course of a 3-year degree by taking a Halifax Student Bank Account or by
buying the gift themselves.
Halifax says the gap between the interest-free limits (up to £1,750 in a
year) is lending that students would have to finance through some other means. For
most students, that will mean borrowing the money at a much higher rate of
interest such as those levied by credit cards. In doing so, students are likely
to be charged around 15% EAR. Therefore, an extra £1,750 financed through
credit card spending would cost £262.50 over a year. The cost of this lending
is significantly higher than the value of any of the free gifts offered with
student bank accounts, Halifax
explains.
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