Thursday, 1 August 2013

The Curious Case of the Free Money

So, a combination of too much free time and increasing boredom meant I did a bit of personal accounting. The thrill. Upon closer inspection of my Santander student account, I noticed I get an overdraft of £1500 (I'm not one to overspend), but more intriguing is the line of text below my overdraft limit: "The fee for using an Arranged Overdraft is £0.00 per day". No fee for using this overdraft? Hmm. So much potential.

Essentially, a student account needs to have some form of overdraft because of the tendency for some youths to overspend drastically in week one of university and be stuck for the remainder of the term. Mine comes with a condition that £500 is paid into the account every academic term. Simple, the maintenance loan covers that. So, my bank is giving me access to £1500 worth of free money to do what I will with for the duration of my year at University. Is this money really free? In essence, yes it is. But in truth, if you're haphazard with your money I wouldn't view it this way.  It isn't free forever, and there will come a time when the bank will try and charge you for using it - if you cannot pay it back at this point that free money has just turned into expensive money. You see, banks use their overdraft as a way of praying on unsuspecting students. They know the stereotype that students spend all of their money on booze and parties and use this to their advantage. Force these students into their overdrafts, thinking their safe, up until a point where they cannot pay the money back and slap them with a huge charge. Not great.

If you're good with money - savers particularly, investors preferably, then there is profit to be made here. The bank is giving you £1500 (£1200 to be safe, or whatever your bank offers) to play around with. On the day the student loan is paid into your account, pull out all £1200. Use this money wisely. Put it in a savings account or an ISA if you want to make a small, but safe return. If you're willing to take risks and you know your markets then use it to create/enhance your investment portfolio. £1200 invested wisely has the potential to make a seriously good mark-up. For the remainder of the term live off your overdraft. Spend your way through it, but not past the £1200 mark. At the end of the term, cash out of your investments and pay £1200 of it back into your student account to cover the overdraft. Your account is back in the black, and you *hopefully* have some extra spending money to go out with, or donate to me for giving you this handy tip.  

I guess it is here that I should say I do not condone all students blowing their money on a lousy investment. I do not condone students emptying their accounts. I do not condone anything. Nada.  Understand the risks before you do anything, it is on you if it goes balls up. This is just a ramble from myself, I personally went down the safe ISA route - I'm not an investor, but the potential is there. Free money eh? Just a thought.

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