Tens of thousands of new graduates will be hit by overdraft interest payments after HSBC announced plans to become the first high street bank to scrap free borrowing for university leavers.

Traditionally, banks allow new graduates a three-year interest-free period on their student overdrafts so they can clear the balance. But students who have an account with HSBC will have to pay nearly 10 per cent interest on their overdraft from August. For those with the maximum overdraft of £1,500, this will cost almost £12 a month, or £142.20 a year.

Students who want to avoid paying interest on their overdraft must pay a fee of nearly £120 a year.

HSBC says this will prepare students for life after University. Karen Garner, of HSBC, said: "This gets the message across that there is a cost to borrowing, and prepares graduates for the transition from student life to that of a young working professional."

A spokeswoman at the NUS said: "The period after graduating is tough for a lot of graduates and given the debt students are now saddled with its pretty alarming to think students are going to be hit with a big charge."

HSBC will not reveal how many graduates will be affected, but the National Union of Students said HSBC’s account is popular among students and that a significant proportion of the 280,000 undergraduates finishing their degree this summer are likely to hold an account with HSBC.

The bank offers a free overdraft of £1,500 as standard to students in their third year, but from July 16th they will be transferred to a new standard graduate account. Overdraft charges of 9.9 per cent will kick in a month later. Alternatively they can choose a premium account, with an interest-free overdraft, for £9.95 a month.

Those who graduated before this summer will not be affected by the change and will still have access to an interest-free overdraft for the next two years. Michelle Slade, of Moneyfacts.com, the price comparison site, said: "I'm very surprised. The impression is that they aren't interested in the graduate market anymore. With the amount of free overdraft deals available graduates will almost certainly look elsewhere."

HSBC has consistently offered students less free borrowing than its high street rivals. Barclays, Natwest, RBOS and LLoyds all offer third-year students an interest-free overdraft of £2,000 when they graduate, falling to £500 after three years.

Mark Dampier, Head of Research and Hargreaves Lansdown, the independent financial adviser, said: "There is an awful apathy level with these things and HSBC will have worked out how many people will leave and how many people will stay and pay up. This is just the way banks operate. They are looking around to see where they can make more money and it's a continuing squeeze. "

But Mrs Slade still thinks HSBC will loose thousands of customers.”Lots of other banks are offering 0 per cent deals on free overdrafts for graduates, and its easy to switch. Banks understand that graduates will be coming to them with large overdrafts and they will look favourably on them."