Money Insider: A tip for students - keep your sensible hat nearby

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The Independent Online

with this year's A-level results set to be announced on 18 August, students will soon be busy making their university arrangements ready for the autumn. One area that they'll need to consider is which bank account to choose before they set off for life at college.

No matter what the economic climate, banks are always hungry for a share of the student banking market. After all they're the potential big earners of tomorrow, and the banks will be hoping to sign them up for their profitable investment, pension and mortgage products in later life.

The big high-street providers have all now released details of their student account packages for this year and as usual are offering an array of incentives in an effort to win the custom of the new intake of 2011.

However, the most important element of a student bank account for most people will be the ability to borrow as much money as cheaply as possible. So even though free music downloads or discount off a laptop or mobile phone package may sound tempting, the following numbers should convince you to give the gimmicks a miss.

If you could borrow an additional £1,000 interest free, you would save almost £100 every year compared with a student bank account that was to charge you interest at a rate of 9.9 per cent for authorised borrowing. That's a huge saving over the course of your time at university and far outweighs the value of any incentives on offer.

If you've done your sums and you're likely to need to borrow £2,000 from year one, then Halifax, HSBC or Barclays should be your first choice.

Halifax and HSBC will lend you up to a maximum of £3,000 interest-free. However don't exceed these limits as you'll end up paying additional unauthorised borrowing costs which you can ill afford on a student budget.

Money tips for students

If you can, try to avoid the urge to sign up for a student credit card, but if you really must have one in your purse/wallet make sure it's only used for emergencies. Don't be tempted to use it as an extension to your overdraft because unless you've got the cash to clear the account in full, your measly budget will be squeezed further with interest charges at almost 20 per cent APR. The banks will make it easy for you to apply for a card when you open your bank account, but they are really best avoided until you have a regular salary.

As well as studying, university is also somewhere you'll pick up some life skills, including managing your money and trying to live within a budget.

Try to work out roughly what you're going to spend each month and try to stick to it. Don't get carried away and blow all your money in fresher's week. Student life is meant to be enjoyable, but make sure your sensible hat isn't far from your side. Just because other students are splashing their cash on nights out at the student bar, don't be tempted by peer pressure – learn to say no sometimes and try to live within your means.

You could try setting yourself a weekly allowance for food shopping and cash for going out and make an effort to stick to it. Just draw out your allowance in cash each week and get into the mindset that once it's gone, that's it until next week – it may seem hard at first, but at least this way you won't spend what you don't have.

Budgeting may sound boring, but it's got to be better than running out of cash halfway through term and having to ask your parents to bail you out.

If your money isn't going as far as you'd thought when you're at college and you're in danger of going over your limit, speak to your bank – if there's a branch on campus you'll usually be able to speak to a student specialist who can help you out.

Don't ignore the problems. They won't go away and could end up distracting you from your studies.

Finally, if you're fortunate to have a reasonable credit balance it's best to switch it to a savings account. Most student current accounts pay no credit interest, with the exception of Santander 2 per cent AER on a maximum balance of £500 and HSBC 2 per cent AER up to £1,000.

You can get instant access to your cash and a better rate from the Post Office online saver account at 3.01 per cent AER, plus if you keep your spare cash somewhere other than your current account, you'll be less tempted to dip into it.

Andrew Hagger –

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