Find the Best Student Bank Account

17-Sep-2009

If you're heading off to university, you're a dream come true for high-street banks.  As few as 20 per cent of people ever switch their bank account, so you represent many years of custom - and more than likely a few years of debt.  Student accounts are different from standard current accounts in that they offer you an interest-free overdraft of up to £3,000, usually for the duration of your time at university and for several years after you graduate, although the maximum will usually diminish over time. 

They will also usually offer useful extras such as mobile phone insurance or a USB memory stick as a way of standing out from the competition. It's easy to be tempted by great freebies and offers, but since your student bank account is going to play a very important role in your university career, it's important to make your choice for the right reasons; good value for money, account features that fit your lifestyle and a high level of customer service.



An overdraft is a 'safety net' that means you are basically borrowing money from the bank, and most student account providers will allow you to pay no interest for an agreed period of time.  As loans go, it is likely to be the best value unsecured loan available aside from a loan from the Student Loans Company, but as with any consumer credit product, you need to be disciplined in your finances to make the best use of it and avoid the fees and charges. Pick a student account that lets you have some leeway after you graduate, and that offers a competitive interest rate once your interest-free period runs out.  Also make sure that you are aware of how much you are likely to be charged if you exceed your agreed overdraft limit.

The overdraft facility is likely to be the reason you choose a student bank account.  For those living on a shoestring budget, having that extra cash available can seem like a godsend.  However, it's important to remember that even though you will not have to pay the money back any time soon, you will do when you leave university and get a job.  The last thing you want to do when you are starting to pay off your student loan and starting your first job is to have to pay back £3,000 in monthly installments, with interest.

Rather than simply removing your access to funds at the end of your limit, many banks will give you a buffer zone.  Ostensibly, this is to ensure that you can get hold of money if you need it, but going beyond your limit also gives banks the option of charging you large fees (up to £50 daily).  As with a standard current account, you are also likely to be charged a fee for unpaid cheques, direct debits and standing orders where the transaction cannot go through because of a lack of available funds. 

Most student accounts come with a standard administration fee that is charged monthly while you are overdrawn.  Banks will often offer extra benefits such as discounts on student-friendly products and services to make this fee more palatable to new customers.  However it's rarely worth taking out an account purely on this basis - extras such as breakdown cover are only worth paying for if you are actually going to use them.  Alternatively, consider opening a savings account or an ISA to run alongside your student account, so that you can transfer any spare funds to an account that earns you some money.

Student accounts are unlikely to be the most competitive on the market if you are in credit, since the overdraft benefits are seen to be the main reason that students find these accounts appealing.  If you are careful with your finances and feel that you will probably not use an overdraft limit, shop around and see if a standard current account can offer you a better rate of interest on the money in your account.  Whichever account you choose, remember that it is key to keep an eye on your money to ensure that you do not incur fees and penalty charges.

Below is an overview of the current crop of student bank accounts, freebies and all:

Natwest Student Account

Overdraft limit: Up to £1,250 in your first year, £1,400 in your second year, £1,600 in your third, £1,800 in your fourth and £2,000 in your fifth.
Other facilities: Chequebook, debit card/cheque guarantee card. Student credit card with a credit limit of up to £500 and up to 56 days interest-fee credit.
Banking Options:  Mobile banking, telephone banking, in-branch and text banking.
Fees and charges
-  No account charge as long as you stay within your agreed overdraft limit.
-  Exceeding your overdraft: £28 per month
-  Paid referral fee: £30 per day up to a maximum charge of £90 in any one month
-  Guaranteed Card Payment Fee: £35 per transaction (maximum of £105 per day)
-  Unpaid item fee: £38 per item (maximum of £114 per day)
Interest earned: 25% AER for balances up to £10,000
Freebies: 16-25 Young Person's Railcard, 4GB memory stick, discounts on mobile broadband, Asus laptops and 20 per cent off at lots of high-street shops.

Find out more and apply...


Royal Bank of Scotland Student Account

Overdraft limit: Up to £1,250 in your first year, £1,400 in your second year, £1,600 in your third, £1,800 in your fourth and £2,000 in your fifth.  Also, up to £2,750 at any time, subject to application (and a credit check)
Other facilities: Chequebook, debit card/cheque guarantee card. Student credit card with a credit limit of up to £500 and up to 56 days interest-fee credit.
Banking Options:  Mobile banking, telephone banking, in-branch and text banking.
Fees and charges
-  No account charge as long as you stay within your agreed overdraft limit.
-  Exceeding your overdraft: £28 per month
-  'Paid referral fee': £30 per day up to a maximum charge of £90 in any one month
-  Guaranteed Card Payment Fee: £35 per transaction (maximum of £105 per day)
Unpaid item fee: £38 per item (maximum of £114 per day)
Interest earned: 25% AER for balances up to £10,000
Freebies: 2-for-1 Vue cinema card, discounts on gigs, shows and holidays, card protection, 4GB memory stick, discounts on mobile broadband and Asus laptops

Find out more and apply...


Barclays Student Account

Overdraft limit: Up to £2,000 interest-free with the option to extend it to £3,000 at a rate of 8.9 per cent
Banking Options:  Online banking, telephone banking, mobile banking and in-branch banking.
Other facilities: Contactless debit card/cheque guarantee card, chequebook.
Fees and charges
-  Reserve usage fee (£22 per 5 consecutive days when you exceed your overdraft)
-  Returned transaction fee: £8
-  Guaranteed transaction fee: £8
Freebies: 25 per cent off Orange mobile broadband (saving of up to £112.50 over an 18-month contract).

Find out more and apply...


HSBC Student Account

Overdraft limit: Up to £1,000 in your first year, £1,250 in your second year, £1,500 in your third, £1,750 in your fourth and £2,000 in your fifth.
Other facilities: debit card/cheque guarantee card, chequebook
Fees and charges
-  Stopped cheques: £12 per cheque
Freebies: Two years free worldwide travel insurance, free TalkMobile SIM card with £5 preloaded, discounts on travel guides, music and Dell computers
Interest earned: 2 per cent AER on the first £1,000 during your first year

Find out more and apply...