Students heading to university for the first time this month will find themselves faced with lots of decisions – such as what to pack, and which clubs to join during Freshers Week.
But one of the big choices you need to make is who you want to bank with.
Focus on the overdraft
For most students, the most valuable perk offered on a bank account is usually the interest-free overdraft.
With an overdraft, you can spend more money than you have in your bank account – so you are effectively ‘borrowing’ money from your bank.
While banks often charge hefty interest and fees for an overdraft, student accounts are interest-free – as long as you stay within the limits.
Compare overdrafts carefully
Overdraft offerings can vary from one bank to the next – so you need to do your research.
For example, you can currently get up to £1,500 from the outset with Santander’s 123 Student Current Account.* You’ll need to pay in at least £500 per academic year and studying an undergraduate course that is at least two years long.
Other banks offer an overdraft tiered across the years of study. This might mean that you get up to £1,000 in year one, £2,000 in year two, and £3,000 in year three.
To compare deals in more detail, head here.
Don’t assume you’ll get the biggest overdraft
When comparing accounts, it’s important to note that you may not necessarily be offered the maximum overdraft.
Your credit score will be checked when you apply, and those with a higher credit rating are likely to be offered the biggest amounts.
If you want to check your credit score and full report, you can do this with MoneySuperMarket’s Credit Monitor where you can check your credit score in just a matter of minutes. You can also get personalised tips on how you can improve it.
Simple steps include getting registered on the electoral roll, ensuring your address is up-to-date on all your accounts, and making all bill payments on time.
Use your overdraft carefully
While an interest-free overdraft can offer a vital safety net during your studies, you need to remember that an overdraft is not free money: any money you borrow will have to be paid back eventually.
And crucially, if you still have an overdraft when you graduate, the rate could shoot up considerably.
Rather than rely on your overdraft, a better approach is to budget well at university, and only use your overdraft if you really need to.
Look beyond the freebies
Student accounts are renowned for their joining incentives, as banks use these to try and lure you in.
Right now, for example, Santander is offering a free four-year16-25 Railcard and up to 15% cashback with select high street retailers on its 123 Student Current Account. To earn cashback, you must use your Santander debit card and sign up to online or mobile banking. You must also register for your railcard via online banking. T&Cs apply.
With the Royal Bank of Scotland / NatWest Student Account, you can choose between a one-year free Amazon Prime Student plus £10 Amazon.co.uk gift, a National Express Coachcard, or a Tastecard. T&Cs apply.
But while such perks can prove useful to those who will make good use of them, you should not choose your student bank account based solely on the benefits. The key is to find an account offering a decent overdraft as well.
Look at the interest you might earn
Generally speaking, students spend a lot of their time in their red, but if you think you might end up spending some of your time in the black, it’s worth checking out the interest you can earn if you’re in credit.
With TSB’s Student Account, for example, you can earn 5% AER/gross (variable) interest on balances up to £500.
Check out customer service
Another important feature to consider when choosing a student bank account is how the bank fares in terms of customer service. You can check this out here when you’re comparing deals.
How to open a student account
You can apply for most student current accounts online. You can save yourself time and effort by using your UCAS codes. These codes allow the bank or building society to quickly confirm your status as a future student.
You will also need to provide other supporting documentation, such as proof of identity (such as a passport, birth certificate or driving licence) and proof of address (such as a bank statement or bill).
*Representative Example: If you use an arranged overdraft of £1,200 the interest rate charged will be 0%APR/EAR (variable)
**Representative Example: If you use an arranged overdraft of £1,200 the interest rate charged will be 0%APR/EAR (variable)