How to sort out student finance in four weeks
Thousands of students across the country are busy getting ready to start university. But besides all the socialising and lectures, there's a lot more to student life to think about.
For many packing their bags, it'll be the first time they've had to fend for themselves financially – well perhaps with a bit of help from mum and dad, too. If your child is getting ready to head out the door in a month's time, fortunately there's not that much you need to do to get them financially prepared.
Assuming you've already helped them navigate their way through the student loan application process (the deadline for which passed a few months ago), now you just need to get them sorted with a good student bank account, insurance and, most importantly, teach them how to budget.
Luckily, Moneywise is here to help with all three.
Student bank accounts
For the majority of new students, this is likely to be their first non-savings account and the first time they have had access to an overdraft – which can be a real help to students struggling to make ends meet.
Research from financial education company Blackbullion found that half of students run out of cash before the next instalment of their student loan hits their account, while a recent survey from website savethestudent.org found that 80% of students worry about their finances when they go to university.
Clearly then, an interest-free overdraft – which these accounts come with – can really help. For full- time students, depending on their financial situation and that of their parents, they could be eligible for a maintenance loan of up to £5,555 for courses starting in September.
Spread over a nine-month academic year, that works out at £617 a month – not a huge amount when you factor in rents, living costs and all other luxuries. According to the savethestudent.org survey, the average student spends £735 every month including rent, meaning each student is looking at a shortfall of £118 a month – or £1,062 over the course of an academic year.
As a result, picking the account with the biggest interest-free overdraft is sensible.
HSBC and Halifax both offer an interest-free overdraft facility of up to £3,000 available in each year of study. The Barclays account has an annual limit of £2,000, while the Lloyds and Santander account offer an interest-free overdraft of up to £1,500. Other accounts offer tiered overdraft facilities, increasing in each year of study.
The Co-operative student account offers a £1,400 overdraft in the first year, rising to £2,000 in the final year. The NatWest and RBS accounts start at £1,000 in years one and two, rise to £1,500 in the third year and up to £2,000 if studying for five years.
When deciding on the best account, it is important to remember that while some come with impressive freebies, you shouldn't be distracted by them.
The Santander account, for example, comes with a free four-year 16-25 railcard, giving students a third off train travel – one of the more attractive and useful freebies. But its overdraft only goes up to £1,500 – just half of what HSBC and Halifax offer and chances are your kids would get more benefit from the bigger overdraft than the railcard alone.
How student accounts compare for overdrafts and incentives
|Maximum interest-free overdraft in first year||Maximum interest-free overdraft after three years||incentives|
|HSBC||£3,000||£3,000||£60 Amazon gift certificate for students opening the account before 31 October 2013|
|Halifax||£3,000||£3,000||Personalised debit card|
|RBS/Natwest||£1,000||£1,500||Free Tastecard membership offering two for one meals and 50% off at UK wide restaurants when you sign up for digital banking and paperless statments|
|Santander||£1,500||£1,500||Free 16-25 four-year Railcard offering a 1/3 off rail travel|
|Lloyds||£1,500 (£500 for the first six months)||£1,500||N/A|
|Barclays||£2,000||£2,000||Personalised debit card|
With a smartphone, laptop, games console and digital camera, a student's bedroom is no longer only filled with library books, dirty plates and piles of washing.
The average student takes belongings worth more than £2,000 to university and they're the most likely group in society to be burgled, so the need for insurance is great.
There are a couple of options here. Either your child can take out their own contents policy – the insurer will usually require for them to have a lockable door to their room – or you could add their belongings to your own existing contents policy.
A standalone student policy with Endsleigh for up to £750 of laptop and gadget cover (including a smartphone) will cost £10.99 a month, while cover for up to £1,500 will set you back £13.99 a month.
For a further £15 a year, this can be added to with-room cover for theft, lost or damage to their possessions in their student accommodation. Top up with-room cover for when they're back home for the holidays too and the one-off cost rises to £19 a year. So opting for cover for up to £1,500 plus the holiday room contents add on would cost £144.91 per academic year.
But before your soon-to-be student takes out their own policy, it could work out much cheaper to add their belongings to your home contents policy – you could ask them to pay the difference.
For example, Aviva's standard home contents insurance policy comes with cover for contents worth up to £5,000 worth of belongings while at university as standard, even if they are kept in student accommodation.
Always remember that possessions are only covered if they are stolen after forced-entry or exit – so remember to tell your kids to lock their bedroom door at university.
Looking at the numbers, Aviva's home contents policy, based on a three-bedroom house in Basingstoke, will cost you £130 a year, while if you were to add another £2,000 of personal possessions cover to insure the student's belongings while they were out and about would take the premium to £156.50.
This compares favourably to the Endsleigh policy, which at £13.99 for 12 months, will cost £167.88 a year.
While the saving is undeniable, you do need to bear in mind the effect a claim for, say, damage to your offspring's belongings would have on your own excess. There's little point claiming for a damaged iPad only to have to pay a heavier excess and see your own renewal premium go up the following year.
Remember that it's likely your child isn't going to be living in the best part of their university city or town so you could loose your no claims bonus if your child is unfortunate enough to be burgled.
Setting a budget
Budgeting is a skill we all need and one learnt as early as possible. With just a month or so left to make sure your soon-to-be freshman can master their finances, a good place to start is drawing up a list of likely outgoings.
Be realistic about they can achieve – while you might want them to spend all their cash on textbooks, reading materials and fruit and veg, the likelihood is that they'll want to spend at least some of their time and money in the student bars letting their hair down, too.
This year's savethestudent.org survey found that students spend on average £735 a month, with the biggest proportion of that (£365 or 50%) going on rent, followed by food (£105), socialising (£64) and bills (£58).
Take a look at these numbers and work out with your child how much money they will need to live comfortably.
If their maintenance loan won't be enough for them to live off, then you could consider helping them out financially on a monthly basis or they could try to find a part-time job if it won't interfere with their studies too much.
With 18% of students saying they rely on their parents to help them out during university and 16% taking on a job to fund their studies, it seems the majority of students have to be savvy about how they get by, so make sure they are ready before the start of term.
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.
No claims bonus
A discount on a car insurance premium as a reward for having not made a claim on the policy. The NCB is earned for every year of claim-free driving; a driver will earn another year’s NCB to a maximum of five years. The actual discount on the insurance premium will depend on the insurer. If you make a claim, your insurance company may reduce your discount by a number of years so you have to “earn” these over again or it may revoke the NCB entirely. Motorists can generally transfer their NCB across to another insurer and can pay an additional premium to protect it so should they have an accident, the NCB remains intact.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Does exactly what it says on the tin: covers the contents of your home for theft and damage and also may insure certain possessions (jewellery, cycles) outside of the home. Things to watch for include the excess and also the maximum payout on individual items. Another grey area is kitchen fittings, as some contents policies say these are not contents but part of the fabric of the property and covered by buildings insurance and some buildings policies don’t cover them because they regard them as contents.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.