Last-minute guide to student accounts
Some 55,000 students found a last-minute university place through the clearing system last year. Some had missed or bettered the grades they needed so were looking for places at different colleges or on different courses but others had simply decided to apply for university late.
With that latter group in mind, Moneywise has put together a last-minute guide to student bank accounts for anyone needing one in a hurry.
There are nine accounts on the market and the most important way to tell them apart is to look at the size of the interest-free overdraft.
How do the accounts match up?
The biggest on offer this year are from HSBC and Halifax, which are both offering up to £3,000.
But it's important to bear in mind that not everyone gets the headline amount, which is simply a guide to the maximum amount available. For example, in the case of HSBC, all successful applicants are guaranteed £500 upon the account being opened. The full whack of £3,000 is reserved for students with the very best credit ratings but most applicants will find their overdraft capped at around the £1,500 mark, according to research from Savethestudent.org.
Meanwhile, Halifax guarantees a £1,000 facility on account opening, so twice the size of HSBC's opening offer. But just like HSBC, only those students with squeaky clean credit ratings will get the full £3,000.
Barclays, NatWest and Royal Bank of Scotland (the latter two are part of the same company) all have up to £2,000 on offer. However, Barclays makes just 10% (£200) available immediately to successful applicants, and students have to ask to have the amount increased. NatWest and RBS do something similar, capping the initial amount at £500 in the first term but this can be raised to the full £2,000 limit thereafter.
The Co-op will also grant overdrafts of up to £2,000 but only £1,400 is available in the first year and the full £2,000 from year three. However, Savethestudent.org says "a high number of students have reported getting the full advertised overdraft amounts with Co-op".
Santander and Lloyds will give students overdrafts of up to £1,500 in the first three years of study, which is how long most undergraduate programmes run for, but both increase the limit to £2,000 for customers studying for longer. The larger facility is available for those in years four and five, while the Lloyds account extends to year six.
The last account on our list, from TSB, has a maximum overdraft of £1,500, starting with £500 for the first six months. Students can ask for this to be increased, up to £1,000 in months seven to nine and to the full £1,500 from month 10 onwards – up to a maximum course length of six years.
All accounts mentioned come with an assortment of 'freebies' – such as NUS Extra cards and railcards – and services such as text alerts, mobile banking and advice forums. However, these things pale into insignificance compared to the size of the interest- free overdraft. The table above gives a breakdown of each account showing exactly what's on offer and the accounts appear in order of overdraft size.
Student current accounts compared for overdrafts, credit interest and incentives
Interest-free overdraft: £3k (years 1-5)
Credit interest: 2% on first £1k in year 1
Credit card limit: Up to £500, 18.9% APR variable
Incentives: £60 Amazon gift certificate, plus £70 off any Kindle Fire HDX
Interest-free overdraft: £3k (years 1-5 but only £1k guaranteed in year 1)
Unauthorised overdraft rate: 24.2% EAR
Credit interest: 0.1% gross
Credit card limit: Up to £1k, 19.9% APR typical
Interest-free overdraft: £2k (years 1-5)
Authorised* overdraft rate: £1 per day on agreed overdrafts above £2k
Incentive: 10% discount on Student Possessions Insurance until 28 October 2014
Interest-free overdraft: £2k (years 1-5, although in year 1 from £500 in term 1, £2k from term 2 onwards)
Credit card limit: Up to £500, 18.9% APR
Incentive: Tastecard membership for 2 for 1 meals of 50% off food
Interest-free overdraft: £1,400 (year 1), £1,700 (year 2), £2,000 (year 3)
Authorised/unauthorised overdraft rates: 9.9% EAR/18.9% EAR
Interest-free overdraft: £1,500 (year 1-3), £1,800 (year 4), £2k (year 5)
Unauthorised overdraft rate: £5 per day (max £50)
Credit interest: 1% on balances of £100+, £2% on £200+, 3% on £300+ (max £2k)
Incentive: Free four-year 16-25 Railcard
Interest-free overdraft: £1,500 (year 1, tiered £500 for first six months, then £1k months seven to nine, £1,500 month 10 onwards), £1,500 (years 2-3), £2k (years 4-6)
Unauthorised overdraft rate: £8.2 EAR
Credit card limit: Up to £500, 19.9% typical APR
Incentive: NUS Extra card for three years
Interest-free overdraft: £1,500 (year 1, tiered £500 for first six months, then £1k months seven to nine, £1,500 month 10 onwards), £1,500 (years 2-6)
Unauthorised overdraft rate: £8.2 EAR
Credit interest: 5% on balances up to £500
Credit card limit: Minimum limit £500, £19.9% APR
*The amount of interest charged for overdrafts exceeding to standard interest-free maximum
What is a credit rating?
If you ever want to borrow money, whether in the form of an overdraft, credit card, or any other loan, a lender will look into your credit history to find out what type of borrower you are. The lower the risk of you not repaying the debt, the better the rating you will be given by a credit rating agency (Experian, Equifax and CallCredit are the biggest three).
Not many students have experience of credit before going to university, so this is generally when they will first apply for an overdraft or credit card.
With no history to check against, all the ratings agencies or lenders can go on when assessing an application for credit are things such as whether you have a student loan or part-time job. Credit ratings are extremely important later in life, when buying homes and applying for mortgages, for example. So it's good practice to always make sure you stick to the terms of any loan agreement by not exceeding authorised overdrafts or missing payments. If you don't, your credit rating will suffer and you will find it harder to borrow money in the future.
Try to check your rating regularly, which you can do through the ratings agencies, using free trials (always remember to cancel these within the time limit to avoid paying a fee) or by paying a one-off fee of £2).
What you need to open a bank account
- Up to two forms of photo ID, such as a passport or driving licence
- Proof of address (your parents' house usually but you can add your term address to the account later)
- Proof of student status, such as your university acceptance letter or UCAS offer letter.
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.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.