School's out, so British banks go in

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A Young Worker's account sounds like a form of communist banking, but that couldn't be further from the truth. In the fiercely competitive UK current account market, banks are increasingly keen to snap up those school-leavers who enter the world of work rather than going to university. And that means offering incentives which they hope will turn young people into long-term customers.

A Young Worker's account sounds like a form of communist banking, but that couldn't be further from the truth. In the fiercely competitive UK current account market, banks are increasingly keen to snap up those school-leavers who enter the world of work rather than going to university. And that means offering incentives which they hope will turn young people into long-term customers.

HSBC launched an account called one8two1 last week. This offers perks, such as a free driving lesson, as well as free financial advice to encourage those in their first jobs to manage their finances responsibly.

Since young people starting out in work don't tend to earn huge salaries, keeping to a tight budget - particularly towards the end of the month - is essential. To this end, HSBC's new account for 18- to 21-year-olds has a £50 fee-free overdraft buffer for up to 10 working days.

If, having later graduated to an agreed overdraft limit of, say, £150, they still slip over that sum, HSBC will charge only 14.8 per cent for unauthorised borrowing - a competitive deal compared to, say, NatWest's 33.8 per cent on its standard current account.

However, any failure by customers to keep a handle on their finances can bring heavy penalties. Any time spent in the red incurs interest at 14.8 per cent - even in the £50 buffer zone - and £18 fines for regular breaches of arranged overdrafts, though these charges won't be greater than the amount owed.

But even if the account stays in the black, there's no reward for this: the account pays just 0.1 per cent on any surplus cash left at the end of the month.

Rival Alliance & Leicester's young worker account has a smaller fee-free buffer (£20) but features a £50 interest-free emergency fund for the first six months. Although you won't be charged interest on any overdraft agreed later, there's a flat £3 monthly fee to pay instead.

Unauthorised borrowing will incur a higher fine of £25, although this takes the form of a monthly charge rather than a separate levy for every breach.

Remember that young worker accounts are simply vehicles for those taking their first financial footsteps.

Once salaries rise and finances become more complex, shop around instead of upgrading with the same bank.

Different lenders offer wildly varying overdraft limits and credit interest deals, so check out rival banks first.

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