Lesson one for all freshers is a crash course in bank accounts

David Prosser assesses the options on offer to another eager crop of new students as the academic year begins

As the first of thousands of students who successfully navigated their way through their A levels prepare to take up their university places on Monday, Britain's biggest banks are moving into marketing overdrive. Students may not have much cash while they are at college, but they are likely to be high earners in the future and the banks are desperate to recruit them early.

One of the first challenges in freshers' week is to find the best banking deal. All the banks offer preferential rates and free gifts to students, but some accounts are better value than others. The key is to work out what you really need, rather than accepting the first freebie you're offered.

Martin Lewis, a former student union president who now runs the popular Money Saving Expert internet site, warns freshers to be careful at the student fairs that will take place over the next few weeks.

"Student unions are normally fierce protectors of their members' rights," he says, "but some sell exclusive access to their fairs for new students to the highest bidding banks, in order to bolster the union's funds."

The fact that a bank pays through the nose to get its stall in front of freshers is no guarantee its account is going to be any good. The traditional way to choose a current account - based on how much interest you earn while in credit and the rate you pay when overdrawn - is just as appropriate for students as anyone else.

Start by forgetting all about the free gifts on offer. HSBC's free MP3 player, for example, will be no use when you run out of cash two weeks before the end of term. Equally, commission-free currency from Halifax won't be much help to cash-strapped students who cannot afford to leave the country anyway.

"For most students, the crucial account features are overdraft limits and rates," says Samantha Owens of market analyst Moneyfacts. "The potential savings on these could mean you can buy one of the advertised freebies and still have cash to spare."

Usually, with current accounts, consumer groups advise people to avoid the big banks, which have a reputation for poor service and sub-standard interest rates. In the case of students, however, it is the big banks that offer the special deals, so for once, they are the best value.

None of the big banks pay students much when they're in credit - the pay-off is the offer of generous interest-free overdrafts. Student accounts almost all come with an interest-free overdraft of at least £1,000 in year one, and the amount you may borrow at no cost rises in subsequent years of your course.

These limits aren't automatic - they depend on your credit rating - but most new students should qualify. But check how long the overdraft remains free once you graduate. Most banks should give you at least a year to repay what you owe before they start charging interest.

Never exceed your overdraft limit without speaking to your bank first - the rates on unauthorised spending are much higher. Equally, even if you don't expect to need the full overdraft limit offered, choose an account on this basis. Students have the option of withdrawing the money and investing it in a savings account to earn interest.

Finally, it is also worth checking that you live near to a student branch of your bank. Although all banks now offer internet and phone-based services, you may need to talk to a student adviser at some stage, with specialist knowledge of undergraduates' financial needs.

Money Saving Expert rates Halifax Bank of Scotland and NatWest as offering the best deals for students this year.

"HBOS's interest-free overdraft averages £1,920 over a three-year course, around £500 more than the next best," says Lewis. "NatWest's account is in second place for interest-free overdrafts, though a good distance behind, but it also offers a five-year young person's railcard worth £100 to first-year students."

Better safe than sorry

* One in three students will be a victim of crime, according to research from Saga, so insurance is important. There are two options: buy a student policy or get cover through your parents. Insurers such as More Than, Direct Line and Norwich offer free cover to policyholders' student children.

* "Taking out cover on your parents' home contents policy is easy to do and will save cash at a time when budgeting is impossible," says Richard Mason of InsureSupermarket.

* But check what cover you're getting from mum and dad. You are unlikely to be able to insure more than £5,000 worth of possessions. Also, thefts during vacations are often excluded. So is "walk-in" theft, where there is no sign of a break-in - common in shared accommodation.

* Specialist policies from Endsleigh, Cover4students and Saxon are less likely to include so many exclusions. But in some parts of the country premiums can top £100 a year.