Watchdog advises students on borrowing

Students should avoid using credit cards for long-term borrowing, the Irish Financial Services Regulatory Authority warned yesterday as it published new surveys on student credit cards and current accounts.

The financial regulator's consumer director, Mary O'Dea, advised third-level students to be wary of what the regulator calls "the minimum payment trap".

A €500 debt will take five to 11 years to pay off and cost €180-€400 in interest charges if the cardholder chooses to make only the minimum repayments required.

"Many people have learnt about credit cards the hard way. Credit cards are an expensive means of long-term borrowing and you could end up paying a lot through interest charges and late-payment penalties if you do not pay the bill on time. Once you get into debt, it can be hard to get out of it, especially if you are in college and have a lot of expenses," said Ms O'Dea.

Student credit cards are a relatively new phenomenon, but research published recently by Bank of Ireland suggests that more than one in five students now hold a credit card, with holidays, emergencies and online purchases being the most common uses.

The bank's research indicated that two-thirds of students cleared their balance every month.

The national overall percentage is estimated to be 50-55 per cent, suggesting students are more sensible about credit-card debt than the population as a whole.

The financial regulator's survey of student current accounts shows that three institutions offer interest-free overdrafts to third-level students:

r National Irish Bank, where students who arrange an authorised overdraft can borrow up to €2,500 interest-free.

r Ulster Bank, where an interest-free overdraft of up to €650 is available as soon as students open an account. Students can also apply for interest-free overdrafts up to €2,800 depending on their year of study.

r Bank of Ireland, which offers a grant advance interest-free overdraft for nine months to help students who experience delays in obtaining their local authority grant.

Ms O'Dea warned students to focus on the fees, charges and services offered under the accounts and not to be blinded by gimmicky special offers and free gifts.

The marketing battleground for new customers is now more commonly taking place among younger students, however.

A survey published yesterday by Bank of Ireland revealed that 72 per cent of second-level students had a savings or current account. The average age for opening a current account is 13 years, while for savings accounts it is nine years.

Half of the 612 second-level students surveyed said they had chosen their bank based on family advice or existing family connections.