The student offers are hot, but is the overdraft?

Continuing our series on saving for children, Melanie Bien finds banks luring undergraduates with perks such as free curries

A level results are out on Thursday, and teen- agers throughout England and Wales will be waiting nervously for the post to find out whether they have made it to university. But when the celebrations are over, successful candidates will still have work to do - researching the best student bank account.

A level results are out on Thursday, and teen- agers throughout England and Wales will be waiting nervously for the post to find out whether they have made it to university. But when the celebrations are over, successful candidates will still have work to do - researching the best student bank account.

The cost of higher education is rising all the time. On graduation, students now owe an average of £12,000, according to the latest Barclays annual debt survey. Taking into account the introduction of variable tuition fees from 2006, the bank estimates the average debt will be £33,708 by 2010.

Managing your money - and your debt - is therefore an essential survival skill if you're off to university. All the "big four" banks - Barclays, HSBC, Lloyds TSB and NatWest - offer a student account, with perks to tempt undergraduates to sign up. Banks benefit from getting the high earners of tomorrow on board while they are students, as most will stick with them in later years. But it's vital not to let introductory offers cloud your judgement; remember that the small print on overdrafts should be your main concern.

Some of this year's freebies are particularly attractive. HSBC and NatWest are offering a free five-year Young Person's Railcard - worth £100 - giving you one-third off rail travel on each journey.

Lloyds TSB's freebie is literally mouth-watering: six "two for the price of one" vouchers on curries and fish and chips at restaurants across the country.

Interest-free overdrafts may not sound so exciting, but they are far more important. Barclays' tiered deal is fairly typical: you pay no interest if you are overdrawn by up to £1,000 in your first year. This limit rises to £1,250 in year two, £1,500 in year three, £1,750 in year four and £2,000 in year five.

But although the deals offered by the banks are broadly similar, there are crucial differences. In particular, HSBC is the only one that guarantees you will be able to go overdrawn to the full limit for each year. This could seriously affect your finances as a student, so ask for full details of a bank's policy on overdrafts before opening an account.

"Some banks refuse to increase overdrafts until later on in the academic year - or in many cases won't increase them at all to the full limits advertised," says Rebecca Stephenson, head of personal customer marketing at HSBC. "Many students are taking on expensive debt to make ends meet until their next loan instalment arrives."

There may also be times when you need to exceed the interest-free overdraft limit. In this case, HSBC charges 1 per cent above the Bank of England base rate on authorised borrowing beyond the interest-free level, giving a current payable rate of 5.75 per cent. Lloyds TSB charges 7.4 per cent.

Rates on unauthorised overdrafts are much higher. HSBC charges 14.8 per cent for an unauthorised overdraft, compared with Lloyds TSB's 29.8 per cent. On top of this, Lloyds TSB levies a £20 fee for each day you are overdrawn, up to £80 a month. However, a spokes-woman for the bank emphasises that there is no need for students to pay these rates: "We always advise people to make contact with us to get an authorised overdraft if they need one."

Where possible, choose a bank with a branch on your university campus, or close to your hall of residence. Not only will this be convenient, it should give you access to specially trained student advisers.

Next week: graduate accounts.