uSwitch.com: Alliance & Leicester’s current account for 16-21 year olds

Mike Naylor, Personal Financial Expert at independent price comparison and switching service uSwitch.com, comments on Alliance & Leicester’s new 10% AER current account for 16-21 year olds:

“Alliance & Leicester has certainly shaken up the current account market with the launch of this best buy 10% AER offer for 16-21 year olds. It’s really refreshing to see a provider encouraging young people to get the best deal for both in-credit balances and overdrafts. This account requires a minimum deposit of just £250 per month, and, although it is a limited offer it also has the added benefit of a 0% EAR overdraft rate for an unlimited period. However, consumers should be aware that authorised overdrafts are subject to a monthly charge of £3 when utilised, so to call it a free overdraft is not strictly true.

“This account is unique in the way it does not issue bank charges for paid and unpaid transactions which do not have sufficient funds in the account to cover them. Again, this is slightly negated by the fact that the unauthorised overdraft alone attracts a charge of £3 per day - so in any one month the individual would still incur a total charge of up to £93 if they were to mismanage their account to this extent. Anyone that does exceed their authorised overdraft will be sent a letter to encourage them to rectify the problem as quickly as possible.

“Consumers will also be subjected to a £5 charge if they do not deposit the minimum £250 per month into the account (for three consecutive months) which is described as an ‘under-funding charge’. Given the account is geared towards young workers and not students, this charge is unlikely to be incurred unless the account holder is ‘in-between jobs’. Account balances can be monitored through mobile phones at a cost of 20p for a balance enquiry and 25p for a mini statement which should help these young consumers to manage their finances carefully.

“There is also a £10 ‘buffer zone’ on this account which will enable customers to withdraw up to £10 from an ATM even if the balance is slightly less. This in itself could be a lifesaver in an emergency situation. This buffer zone is also applicable to authorised overdraft limits to ensure customers do not incur a charge if they exceed their agreed limit by less than £10.”

Naylor concludes: “Overall, this is a competitive deal but young people should make sure they fully understand the terms and conditions - otherwise they could end up paying £72 per year in fees alone for what is really a standard current account. Regardless of age or circumstance, all consumers should keep a close eye their finances and make sure they find the best deal for their individual needs.

“The current account market is in an extremely turbulent state, mainly due to the impending OFT investigation into bank charges. As a result, consumers cannot afford to take their eye off the ball for five minutes as banks are clawing in as much revenue as possible in anticipation of lower bank charges.”

Key features of the account:

10% AER fixed until July 2008 on balances of up to £1000
Balances above £1001 will receive an AER of 0.1%
£250 must be deposited every month, failure to do this will result in a £3 fee and an in-
0% EAR overdraft for (18+ year olds) subject to a £3 monthly charge.
£10 ATM buffer zone
Linked PlusSaver account with 4.80% AER
Visa Debit card
Consumers will not receive bank charges on this account for paid and unpaid items that are processed without sufficient funds in the account
An unauthorised overdraft penalty fee of £3 per day will be incurred