As well as a good brain, students heading to university this autumn need a healthy bank account to help them through their degree course.
Fortunately, there are plenty of student bank accounts available, and it’s crucial that young people choose the best one for them, rather than just sticking with their old bank or choosing their parents’ bank because it’s an easy option. In the latest Student Banking Survey by the student finance website Save the Student, 40% of those surveyed chose their student account because it was with the bank they were already with, while 30% followed friends or family recommendations, and 28% were swayed by freebies.
“Some of these motives have more merit than others, but ultimately, none should be as important as the interest-free overdraft that comes with a student bank account,” says Tom Allingham, student bank accounts expert at Save the Student.
“Opening a student bank account is one of the most important things anyone can do to give their finances a strong foundation at university. Picking the right account could even be the difference between making it through uni or not.”
The reason picking the right student bank account is so important is because students are finding it harder than ever to make ends meet – the latest Save Our Student National Student Money Survey found student maintenance loans fall short of living costs by an average of £502 per month.
“Students have a lot of work to do to cover their expenses,” warns Allingham. “Making ends meet at uni has never been tougher.”
Here, Allingham and Alicia Hempstead, personal finance and insurance expert at MoneySuperMarket, outline everything students – and parents – should know about choosing a student bank account…
Be aware of eligibility requirementsBefore considering the financial implications of the bank account they choose, students need to be sure they’re actually eligible to open one of the accounts.
Hempstead says you need to be 18 or over and have an offer for a qualifying full-time course at a UK university to open a student bank account.
“While part-time or postgraduate students may still be able to apply, some student bank accounts are only available to students on qualifying full-time courses, so it’s important to check the requirements before signing up,” she says.
Consider overdraft amounts
Every bank offers an interest-free overdraft with a student bank account, with all giving students at least a year after graduation to repay it on the same 0% terms, says Allingham.
“But how much you get and how likely you are to receive it can vary massively,” he warns. “This year, the interest-free allowances range from £1,500 to over £3,250 – although the limit in your first year will generally be lower than the advertised maximum.
“What’s more, while some banks will guarantee the size of their overdraft, others will say theirs is ‘up to’ a certain amount. In other words, you may have to choose between one bank offering a lower, guaranteed amount, or another offering a larger potential figure.”
Don’t forget overdraft terms
Hempstead points out that as well as the size of the arranged overdraft and whether it’s interest-free, what happens if you exceed the agreed overdraft limit can also vary.
“Therefore, before signing up for a student bank account, it’s important to check the small print. If students misuse their interest-free overdraft, it could lead to extra debt which may harm their credit rating.”
Graduate options
Towards the end of their time at university it’s worth students looking at what their account offers after graduation, and Hempstead says: “Some banks allow students to switch to a graduate account with a reduced interest-free overdraft period after they graduate, giving them more time to repay what they owe.”
Perks and rewards
Many student bank accounts offer incentives such as free railcards, cashback, and discounts at popular shops, which can help students’ money go further.
“While discounts and perks are offered as an incentive, they shouldn’t outweigh features like an interest-free overdraft,” Hempstead points out.
And Allingham adds: “If and when a rainy day hits, having a larger interest-free overdraft will be far more useful than a £100 sign-up freebie, or having stayed loyal to a bank you were already with.
“And compared to other forms of borrowing, it’s easily the safest and cheapest form of emergency cash. Ultimately, it’s better to have it and not need it, than need it and not have it.”Hempstead says some student bank accounts offer access to financial planning and money-management advice tailored for students.
Don’t forget it can affect your credit score
Having a student account can help students gain experience managing day-to-day finances and borrowing responsibly, Hempstead points out.
But it’s wise to use it responsibly, she warns.
“While a student bank account won’t automatically build a student’s credit score, using an arranged overdraft responsibly, staying within agreed limits, and making repayments on time can contribute to a positive credit history,” she says.
“This may make it easier for students to apply for credit cards, mortgages, and loans in the future, although lenders will consider a range of factors when assessing applicants.”
Look at the reviewsAllingham says it’s important for students to look at the reviews of each lender too. There are many best student bank account lists on the internet, including those compiled by Save the Student, MoneySaving Expert and MoneySuperMarket.
“We include a ‘student satisfaction’ score for each provider in our list of the best student bank accounts, sourced from our survey,” says Allingham.
“If a bank has a high score, it might suggest that their customer service is good, or that they’re pretty reliable at approving requests for a larger overdraft.”
