Email to a friend

Student Accounts

Students will soon be getting their exam grades, seeking places at university and will then be on the search for their new student accounts. Many banks provide specific accounts for students.  Often these come with incentives for opening the accounts but it is important to consider other features when choosing your student account.

Only three providers now offer account opening incentives, HSBC, Lloyds TSB and NatWest, with many other offering ongoing benefits in the form of commission free travellers cheques and a variety of discounted shopping deals. The Incentives on offer seem to have moved away from student ‘useful’ offers such as rail cards (still available at NatWest) to more ‘fashionable gadgets’ such as web cams and iPods.

But however tempting these ‘goodies’ may be it is important that students look at account features such as interest-free overdrafts and unauthorised overdraft rates to choose the account that offers best value for their particular circumstances. The potential savings on these could mean that you could possibly buy one of the advertised ‘freebies’ and still have cash to spare.

Interest Free

Usually student accounts offer an interest free limit, which range from £1,000 to up to £2,500 from the main high street lenders. In some instances these will increase over the term of study for up to five years.

While the higher limits may look attractive, it must be noted that some are not guaranteed, and once the application is processed the student may be offered a much lower figure.

Authorised Overdraft

Often students are able to agree extension to their original account’s limit in times of need, usually for a limited period of time. But what they must realise that, with the exceptions of NatWest and Royal Bank of Scotland, they will be charged interest on this borrowing, which can range from 7.2% to 15.9%.

Unauthorised Overdraft

For many students this is the first time they have truly had to manage their money, and often within very tight margins. It is inevitable that, on occasions they may slip over an agreed limit, which can prove to be a very costly oversight.

Holders of HSBC student accounts seem to get the fairest deal in this instance, not applying unauthorised fees and charging their standard rate of interest (15.9%), compared with fees of £30 per day (max £90 pm) with Lloyds TSB, or interest of a whopping 32.92% at the Co-operative Bank.

Credit Interest

Some student accounts are paying interest of over 3% on credit balances, but with the majority of students unlikely to find themselves with a large credit balance, it does raise the question whether this really is much of a benefit for the student population. For example, a student lucky enough to maintain an average credit balance of £500 for a year will earn a measly £15 at 3%.

When looking for their student accounts, they should also evaluate the services available. Most student accounts providers support a specialist advice service, with dedicated advisers trained in managing student and graduate finances, so it may be worth considering a bank with a branch local to their university.

Most importantly students should choose an account which suits their longer term financial needs and should not choose an account purely based on the incentives dangled in front of them at the outset.