For this year's students, the financial lessons are only just beginning

Choosing the right bank is one of the most important things undergrads can do as they start their academic careers. Mary Rose Fison reports

The scramble is on for university places. Thousands of A-level students will be sitting nervously this week waiting to see where and what they will be studying over the next three or four years. But among the confirming of offers of places made and the merry-go-round of clearing, students should not take their eye off who will they will be banking with at university and beyond. With the cost of tuition set to soar and graduate debt frequently breaking the £20,000 mark, now is more important than ever for university students to select the right bank account.

Financial experts and graduates alike are in agreement that the basic necessities, rather than the bells and whistles, are what count with a student account. Free iPods and music vouchers may be appealing in the short term but if funds begin to dry up, the size of an interest-free overdraft will make all the difference.

Interest-free overdraft

While most students will be eligible for a student loan during university, the rising cost of living, and of education, means an interest-free overdraft can often become a lifeline unless additional funding from parents or relatives is guaranteed. Having a pot to dip into for rent, living costs or tuition fees can be immensely helpful, but it is important to look at the charges for authorised and unauthorised withdrawals as well.

At the moment, the largest interest-free overdraft on offer for a student bank account stands at £3,000 and is available from both the Bank of Scotland's and Halifax's student current accounts. For withdrawals authorised above this amount, both banks charge 7.2 per cent EAR and for unauthorised withdrawals significantly more at 24.2 per cent EAR.

By contrast, the HSBC and Santander student accounts provide overdrafts of £1,000 in the first year of university, which rises incrementally to £2,000 by the fifth year, if the course runs that long. However, neither charges interest on authorised withdrawals. For unauthorised withdrawals, HSBC charges a typical 3.5 per cent EAR and Santander charges 28.7 per cent.

Bells and whistles

With statistics showing people are more likely to get divorced than switch bank accounts these days, banks are prepared to go to extended lengths to entice new customers with attractive perks and offers. Yet the savvy student will look beyond the wrapping for the intrinsic value of a current account.

Robert Lockie, an investment manager at London-based Bloomsbury Financial Planning, warns against prioritising short-term frills over long-term gains. "Real benefits like cheap or free overdrafts are more valuable than record tokens or gimmicks. Banks want to attract students as the future graduate will generally become a higher paid customer, so it's worth it for banks to attract them," he says.

When to open an account

Timing is key when it comes to getting a student bank account up and running. Many students make the mistake of waiting until the freshers' fair to open an account, but activating one before term-time kicks in gives more time to take advantage of any preferential rates as well as get finances in order.

James Harvey, an independent financial planner at Ealing-based James Harvey Associates, says opening an account early can also help when dealing with unexpected circumstances.

"Open early and get the account in operation. Payment of a student loan can get delayed so cash flow is important at the outset, and having an overdraft rate agreed and in place prior to freshers' week is important. Buying books and paying membership subscriptions comes early on, so an active account is helpful."

And while it always makes sense to compare rates, sometimes there can be a benefit to staying with an existing bank provider. Mr Harvey says a decent track record with a bank in the years leading up to university can stand you in good stead for a favourable student account deal that might not be available elsewhere.

"If you already have a bank account, converting this to a student account may bring better terms than a new bank account," says Mr Harvey. "You are already known to the bank and will have started to show some account management discipline, so the bank can justify better terms."

What to avoid

Like unauthorised overdraft withdrawals, credit cards should be avoided unless absolutely necessary and paid off religiously every month. Most big banks offer credit cards beside student accounts, but used without consistent foresight these can lead to the accumulation of unwanted and unnecessary debt.

Interest rates on credit cards can easily top 20 per cent and left unpaid can balloon out of control.

If you don't need to borrow

While a student loan and overdraft may be a necessity for many people, students with a guaranteed source of funding stand to profit from taking advantage of bank and loan facilities if used properly.

"Taking the maximum student loan, even if it is not needed, can provide two benefits," says Mr Harvey. "The money can be placed on deposit with a high interest rate account or individual savings account and benefit made through the interest payment. This may well provide a longer-term source of cheap finance. Even if you have the means to repay the loan, there will be few better sources of cheap finance post university. However, efficient management skills are important here. So if this is not your forte, don't go there!"

Think long term, not freebies

For architecture graduate Rob Ash, 22, the biggest challenge of going to university was completing a degree while also managing his finances. The Wolverhampton University graduate did what a growing number of students do these days, which is to take on a part-time job. He also opted to live at home with his parents rather than go into debt paying rent. Yet in spite of these measures, he graduated with a student loan debt of £18,500.

Looking back, he says that having a sizeable overdraft to dip into through his Lloyds student account helped him to stay afloat. "I knew that the interest-free overdraft could become important and beneficial to me if it became difficult to keep up with my part-time job while completing my degree," he says. When it comes to perks, Rob says his student account didn't have some of the attractions others had, but the overdraft facility more than compensated.

He says: "The offer of freebies is all well and good, and some can be useful, but do your research and try to find an account that is easily accessible and will support you through your studies. See what's on offer, rather than going for the first one you see."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Extras
indybest
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
Arts and Entertainment
tv
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
News
Ronahi Serhat, a PKK fighter, in the Qandil Mountains in Iraqi Kurdistan
i100
Arts and Entertainment
Poet’s corner: Philip Larkin at the venetian window of his home in 1958
booksOr caring, playful man who lived for others? A new book has the answer
Arts and Entertainment
Exhibition at the Centre Pompidou in Metz - 23 May 2012
art
News
Matthew McConaughey and his son Levi at the game between the Boston Red Sox and the Houston Astros at Fenway Park on August 17, 2014 in Boston, Massachusetts.
advertisingOscar-winner’s Lincoln deal is latest in a lucrative ad production line
Life and Style
Pick of the bunch: Sudi Pigott puts together roasted tomatoes with peppers, aubergines and Labneh cheese for a tomato-inspired vegetarian main dish
food + drink
Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
film
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Junior Quant Analyst - C++, Boost, Data Mining

    £25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

    Service Desk Analyst- (Desktop Support, Help desk)

    £25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

    Junior Quant Analyst (Machine Learning, SQL, Brokerage)

    £30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

    UNIX Application Support Analyst- Support, UNIX, London

    £45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...

    Day In a Page

    Air strikes? Talk of God? Obama is following the jihadists’ script

    Air strikes? Talk of God? Obama is following the jihadists’ script

    The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
    Ebola outbreak: Billy Graham’s son declares righteous war on the virus

    Billy Graham’s son declares righteous war on Ebola

    A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
    Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

    Not even Jeremy Clarkson is bigger than the BBC, says TV boss

    Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
    Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

    Nick Clegg the movie

    Channel 4 to air Coalition drama showing Lib Dem leader's rise
    Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

    Philip Larkin: What will survive of him?

    Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

    Waxing lyrical

    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
    Texas forensic astronomer finally pinpoints the exact birth of impressionism

    Revealed (to the minute)

    The precise time when impressionism was born
    From slow-roasted to sugar-cured: how to make the most of the British tomato season

    Make the most of British tomatoes

    The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
    10 best men's skincare products

    Face it: 10 best men's skincare products

    Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
    Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

    Mackay, Moody and another grim day for English football

    The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
    La Liga analysis: Will Barcelona's hopes go out of the window?

    Will Barcelona's hopes go out of the window?

    Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape