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My son, a university student, keeps blowing his budget on online gaming sites. We are not willing to bail him out continually, and would like to move him to a bank account that does not allow him to go overdrawn.
Do such accounts exist? Could I open one for him, or will he have to do it himself? Do such accounts come with apps that will inform him when his balance is getting low? What other apps could we request he downloads on to his smartphone to help with money management?
Going overdrawn without permission and not managing the debt can have a serious impact on someone’s financial situation, now and in the future, says Charlotte Nelson, finance expert at Moneyfacts.co.uk. This is because it affects their credit rating.
You do not say if your son has a student account. While the interest-free overdraft on these accounts is very tempting, with some offering up to £3,000 free in the first year, he will have to pay off the debt eventually.
The options I would recommend are a basic bank account and a prepaid card. Basic bank accounts offer customers free day-to-day banking facilities, allowing you to pay in funds, withdraw money and set up standing orders and direct debits. They do not allow any overdrafts, so are great for anyone worried about overspending. However, a careful eye on the account will still be needed, as any rejected direct debits or standing orders may result in charges.
Virgin Money’s Essential Account can be managed online. Meanwhile, the Post Office Money control account has mobile app facilities.
A prepaid card is not a form of credit, but works in a similar way to a pay-as-you-go mobile arrangement, only allowing you to spend what you’ve put on the card. Once you have used the money, you will have to “top up” again.
Most cards will allow your funds to be paid directly on to them, as well as offering standing orders. There is usually a small upfront issue fee for the card itself. Using the card at an ATM or for shopping is likely to result in a charge. Pockit MasterCard currently tops the Moneyfacts.co.uk Best Buys, offering you all the flexibility you would need, such as paying in wages and online management. The card costs 99p, and each ATM withdrawal costs the same.
You would be able to set up a prepaid card for your son but he would have to apply for a basic bank account himself. However, if your son has already racked up an overdraft, he will not be able to switch to a basic account and take the overdraft with him. Instead, he will have to open the basic account and then switch all payments so the new account becomes his main one. Until the overdraft is paid off, he will have to control his spending and not use the old account for anything other than repaying his debt.
In terms of bank accounts that will not allow your son to go into the red, there are two main options, adds Andrew Hagger, independent bank account expert and founder of Moneycomms.co.uk.
High street banks including Lloyds, Santander, Halifax and Barclays offer current accounts with what they describe as a “control service” that prevents the customer from going overdrawn. The downside of this feature is that the banks can charge up to £10 a month for it. As a university student on a limited budget I’m sure the last thing your son wants is to have to find an extra £120 a year to pay for a bank account.
Having looked at the non-charging options available from the banks, the second, and probably more palatable, option I would suggest is the Cash Account offered by TSB.
This free, no-frills current account does not offer an overdraft facility or cheque book but does have some useful features which may help your son get his finances back on track.
First, it has a facility for text alerts to be sent to a customer’s mobile if their balance drops below a certain level. You and your son could agree the amount together. He can also receive a further weekly message showing his balance and the details of the last six transactions on his account, which I would also recommend he opts for.
Receiving these alerts should make him far more aware of the state of his bank balance, which hopefully will help him to manage his finances better.
In addition to the standard TSB internet banking service, the account has a free optional tool called Money Planner, which will enable your son to keep track of where his money is being spent.
Finally, another option your son may find useful with the TSB account is a facility called Save the Change. Every time he uses his TSB debit card, the bank will round up the amount he spent to the nearest pound and transfer the difference from the current account into an TSB savings account. This would be a great way to kick start a savings habit without really having to think about it.
If your son would prefer an external app for his phone or tablet then there’s a popular iOS one called Spending Tracker. It is free and allows you to budget and track where your money goes. It also highlights any forthcoming cash flow issues.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent