Who can students bank on?

The battle has commenced among banks vying for the business of the 380,000 plus young people heading off to university next month. HSBC is offering bursaries worth £30,000 to four lucky students who open one of its student accounts, while Abbey is giving £50 to new student account customers and Natwest's student account holders will receive a free railcard.

With nearly 60% of people admitting to never changing their current account according to research from Alliance & Leicester (A&L), banks are eager to capture the business of young people now – even if it means taking on significant debts in the process. This is because the financially hard-pressed students of today are the high earners of tomorrow – meaning more money for the big banks to play with.

However, while the freebies may be tempting, it’s important to look beyond the gimmicks when choosing a student account.

The importance of an overdraft
This summer’s graduates have debts averaging £17,000 according to a new survey from Push, an independent research group and a separate survey by the National Union of Students found that many undergraduates under-estimate their living costs.

The fortunate will have parents who can help fund their degree, but for many, debt will become an unavoidable fact of life. For these people, the important thing is to ensure their borrowings are not costing them more than they need.

This is where a specialist student account can reap huge rewards as most offer generous interest-free overdraft terms which can then be carried over to a graduate account for a number of years after graduation.

Halifax and Bank of Scotland offer first year students the largest interest-free overdraft facility at £3,000. However, while these may sound great, you do need to be careful.

Most student accounts have tiered overdraft facilities. HSBC for example, allows students to borrow up to £1,000 in year one, rising to £1,250 in year two, £1,500 in year three, £1,750 in year four and £2,000 for those on a five-year course. This may not seem as appealing as the ability to borrow up to £3,000 from year one, but the danger of going for an account with the high flat limit is that if you borrow to the hilt in the first year, it can make your subsequent years of studies very difficult as there is no guarantee that your overdraft facility will be extended further. And even if it is, you will probably be charged a high rate of interest. You therefore risk running out of money unless you can find a way of paying at least some of the debt down.

It’s worth noting that overdrafts, even on student accounts, are not automatic. You need to apply for one and the limit you are offered could be lower than the maximum that is advertised – it will depend on your credit score.

Do bear in mind that some overdrafts are not guaranteed and once your application is processed you may be offered a lower figure. If you go overdrawn without prior authorisation, or exceed your agreed limit, it could prove very costly.

For example, if you fall more than £100 into an unauthorised overdraft, Lloyds TSB will charge £20 a day – with the maximum charge per month capped at 10 daily fees, meaning you could pay out as much as £200. This is in addition to its annual interest rate for unauthorised borrowing of 8.2% - although Lloyds TSB will waive its fee the first time you go over the limit. Abbey’s student account will charge annual interest at 28.7% plus £25 a month for running up an unauthorised overdraft and you’ll pay an additional fee for each transaction that drops you deeper into the red.

Other factors you should consider
While many students find themselves continuously in the red, others are lucky enough to run their accounts in credit, for much of the time at least. If you’re one of the fortunate ones, then you should consider the in-credit interest rate available.

The A&L Premier 21, an account only available to 16 to 20-year-olds, offers 10% up to £1,000 fixed for one year – however, this does rely on you paying in your earnings or allowance and doesn’t include any of the attractive freebies available with specific student accounts. If you have a large amount of money in an existing current account, it might be worth considering this deal so you can place any cash over £1,000 into the linked PlusSaver paying 5.25%.

The student account offering the most attractive in-credit interest rate is the HSBC Student Service account, with a rate of 6% up to £1,000 for the first year at university. The new Abbey Student Account is also competitive with a rate of 4.0% up to £500.

You should also think about where you’re going to university – and whether there is a bank on campus, or nearby. Though many students prefer to do most of their banking online, branch access can still be useful as this can give you access to specialist student advisers who are used to dealing with the financial pressures many students face.

Finally, look at those freebies
There are four questions a student should ask when shopping for a student bank account:

  • What interest-free overdraft can I get?

  • What other charges might I be subjected to?

  • Is there a branch nearby?

  • What are the freebies?

Certainly it would be remiss not to consider the freebies altogether because they offer good money-saving opportunities.

Yet these are also worth close consideration. For example, there’s no point in free travel insurance if you can’t afford to go anywhere – and there’s no point in AA membership if you can’t afford a car. So think about the discounts or freebies that you can actually make use of depending on your circumstances.

The key, however, is to prioritise your overdraft; interest rates; additional charges; and branch access; and then think about what freebies are available and how you’d use them. The table below outlines some of the leading student bank accounts on the market – for more information check out our current account comparison tool.

Provider & Account


overdraft limit



(up to
£1,000 for
Yr 1

Yr 1: £1,000;
£250 increase each year to Yr 5

Computer, DVD and CD discounts; Two years' free travel insurance 

Service Account

(up to £500)

Yr 1: £1,000
Yr 2: £1,250
Yr 3: £1,500
Yr 4: £1,800
Yr 5: £2,000

£50 cashback

of Scotland

Student Account



Commission-free currency and discount on AA membership

Royal Bank
of Scotland

Royalties Account



Computer, broadband, cinema and travel discounts

Lloyds TSB
Student Account


Yrs 1-3: £1,500
Yrs 4-6: £2,000

£20 when opening account; Free NUS Extra Card, commission-free currency, 12-month YHA membership, music downloads



Yr 1: £1,000;
£250 increase each year to Yr 5

One free cinema ticket per month for six months



Yr 1: £1,250
Yr 2: £1,400
Yr 3: £1,600
Yr 4: £1,800
Yr 5: £2,000

Free five-year Railcard and computer and broadband discounts

Access to all accounts is by web, phone or branch. Abbey, Lloyds TSB and Nat West also allow access via post.

Have your say: Do you have any questions about student finance? If so, why not visit our forum as other members may be able to help?

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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