Battle of the student accounts
Students heading to university this autumn are set to benefit from some of the most competitive student accounts ever seen.
But don't be tempted to take out an account offering the best freebie - spending a little time considering what's on offer could be a boost to your finances later down the line.
What to look for in a student account
Banks want your money. Not only do they know that you will have money coming in, in the form of student loans, parental allowances and even wages, but the logic is that once you are with a bank, you stick with it. Get them young, may well be the motto of many of their marketing departments.
One way many providers attempt to lure you in is by offering freebies - travel cards, MP3 players, book vouchers, you name it, someone probably offers it.
But if you want to make the most of your money, you’ll turn a blind eye to such gimmicks. The fact is that most students will, on at least one occasion, run out of cash. Therefore, the first thing you should consider before electing for an account is one that offers you the best overdraft deal.
Andrew Hagger from comparison site Moneynet.co.uk, says: “Don't be fooled by freebies. For most students your interest-free overdraft will be your lifeline, so always make sure you get the best deal to help you survive.”
Remember to look not only at the amount of overdraft a bank will offer you, but also whether this is interest-free or not. And don’t forget, if you go over this agreed overdraft limit you are likely to be hit with charges. Find out what these are in advance, and try and stick within your limits at all times.
Another thing to look out for with overdrafts is how long they last for. For example, Bank of Scotland's student account (see below) is likely to appeal to many students because it remains at £3,000 for up to five years, and one year after graduation. Not all banks offer a fixed overdraft, and some may withdraw the overdraft almost as soon as you graduate.
If you are confident that you are not going to need an overdraft facility, then check out the in-credit interest rates on offer.
Hagger says: “Another important consideration is how near your bank branch is to your university or new home. Specialist student advice can be invaluable, and with a branch close at hand it's that much easier to manage your money.”
Although freebies shouldn't be your main consideration, some are better than others (see below). Michelle Slade, analyst at Moneyfacts.co.uk, says: “While free cinema tickets or discounted CDs may sound great, the offer of a rail card could save you a fortune if you intend using the train to get to and from college.”
What’s on offer?
|Provider||Interest-free overdraft||Unauthorised overdraft||In-credit interest|
|Abbey||£1,000 year one to £2,000 year five||28.7% |
(plus £25 per month)
|Bank of Scotland||£3,000 for first five years||24.2%||2%|
|Royal Bank of Scotland||£2,750 for first five years||29.84%||2%|
|NatWest||£1,250 year one to £2,000 by year five||17.81%||0.1%|
|Lloyds TSB||£1,500 year one to £2,000 by year five||8.2%||0.1%|
|HSBC||£1,000 year one to £2,000 by year five||8%||6% year one|
|Barclays||£1,000 year one to £2,000 by year five||15.9% ||0.1%|
|The Co-Operative||£1,400 year one to £2,000 by year three||15.9%||0%|
|Yorkshire Bank||£1,000 year one to £3,000 year two/three||29.99%||2.9%|
|Bank of Ireland||£400 year one to £500 year three||12.68% |
(plus 1% per month)
|Correct as of 14/08/08|
Bank of Scotland: Commission-free foreign currency and 25% off AA membership for one year
RBS: £100 off an Asus laptop, and £50 off mobile broadband with 3 mobile plus 2-4-1 Vue Cinema tickets
Lloyds TSB: Commission-free foreign currency, a free NUS Extra card, free YHA membership for a year and 35 free music downloads from eMusic
Natwest: A free five-year railcard for 16-25 year olds, discounts at high street stores and free Microsoft webcam if you apply online
Barclays: Six free cinema tickets
HSBC:Two years free travel insurance
Yorkshire Bank: Special travel discounts with Apollo Travel Direct
Abbey: £50 bonus when you open an account
Two notable accounts are from Bank of Scotland and Abbey.
Bank of Scotland 2008/09 student account has a £3,000 interest-free overdraft, avaliable for up to five years after the account is opened and one year after graduation.
The overdraft facility on this deal trumps those currently offered by other high street accounts, which are often tiered per year of study, although many students may baulk the 24.2% rate of interest levied on those that go over the £3,000 limit.
Abbey's account offers £1,000 interest-free overdraft in year one, increasing to £1,250 in year two, £1,500 in year three, £1,800 in year four and £2,000 for year five plus. Students opening an account will receive a £50 bonus.
Abbey also offers a student account for international students, which again offers a £50 cash incentive. The account will cost you £5 a month to run, but has a competitive 5.84% in-credit interest rate. There is, however, no interest-free overdraft facility.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.