An overdraft is a minus amount of money in your account. So an overdraft limit’ is the sum that your bank has decided you’re allowed to take out of your account even though you haven’t actually got any money in there.

The overdraft is usually denoted by the letters OD’ (or a minus sign, or something similarly alarming) on your bank statement. So, if the months go by and the amount in your account just seems to be growing, but there are these strange letters after the totals, it's time to start worrying.

£700 OD’ doesn't mean you've got £700 to splurge at the sales - it means you've probably done just that with the plastic and now you are overdrawn by £700 - i.e. you owe the bank all that wonga. So if you pay £150 into your account, you'll reduce the amount of money you owe so that you're only £550 OD. Or if you paid in £701, your balance would swell to the knee-buckling sum of £1 CR (CR standing for credit).

Most banks offer a free overdraft facility to students, up to a certain limit. This means that, so long as you don’t go over the limit, you won’t get slapped with any unexpected charges.

Always get official confirmation from your bank of what your overdraft limit is and make sure that it’s going to be enough. Depending on your year of study, the overdraft limit is usually between £1,000 and £3,000 (it grows as your student debts accumulate). Most first years get between £1,000 - £1,500. If there’s any danger that you’re not going to be able to stick to the limit, you need to have a chat with your bank’s student advisor to arrange an extension’.

A couple of don’ts (and these are big don’ts. DON’Ts, in fact).

Don’t wait till you’re nearly at your limit before trying to arrange an extension. You’ll be stuffed if they say no. You should be able to do the maths and on the basis of what’s coming in (student loan and grant payments, part-time job wages, parental contributions and the rest of it) and what’s going out work out whether your balance is going to drop below the limit. They’ll be more likely to help you if you’re being responsible about it.

And don’t, under any circumstances, exceed your limit without getting authorisation to do so. Your overdraft is then no longer free and you get hit with huge charges and fines. Because your bank thinks it's doing such a lovely thing not charging you for the overdraft, if you go over it without asking, they whack on a load of interest to pay - so if you have an inkling you might end up doing something a bit financially wayward check out which accounts have lower unauthorised fees. For example HSBC only charges 8% and Lloyds TSB 8.2%, but both these accounts have lower overdraft facilities than other banks. It's all swings and roundabouts. After the fines for going over the limit, your bank will start to get extra cheeky - they’ll even charge for sending you a letter to tell you that y...

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