How do interest free overdrafts work?
An overdraft is like a loan from the bank, without the need to make regular repayments. Overdrafts are offered to students to help cover their living expenses etc while studying. As long as you remain within the £1250 limit you will not be charged any interest. Once you graduate the bank will switch you to a graduate account (although you can move to another provider if they offer a better deal), where the level of interest free overdraft will reduce each year over a period typically of between 3 and 5 years. Banks are more generous to students as they are trying to encourage them to be loyal to the bank. Many graduates end up in well paid jobs and the banks want to encourage their business later in life.
