Money Insider: How to get the best student bank account: don't be swayed by 'freebies'

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The Independent Online

With a-level results due out next month, students will soon be busy sorting out their university arrangements for the autumn. One area they'll need to consider is which bank account to choose before they set off for college.

Even though we're barely crawling out of recession, the banks are still hungry for a decent slice of the student banking market. After all, they're the potential high-earners of the future and the banks will be hoping to sign them up for their lucrative investment, pension and mortgage products in later life.

The big high-street providers have just released details of their student accounts for this year and as usual are offering an array of incentives and freebies in an effort to win the custom of the new intake of 2010. However, the crucial element of a student bank account for the majority will be the ability to borrow as much money as cheaply as possible. So while some free music downloads or a discount off a laptop computer may sound tempting, the following calculation should convince you otherwise.

Borrowing an additional £1,000 interest-free would save each student £99 a year, compared with a bank account that was to charge interest at a rate of 9.9 per cent for authorised borrowing. That's a huge saving over the years spent at university and far outweighs the value of any incentives on offer.

For students who think they are likely to borrow £1,500 plus from year one, then Halifax or Barclays should be the first ports of call. Halifax will lend up to £3,000 interest-free and Barclays up to £2,000. However, be careful because exceeding these limits can result in additional unauthorised charges, which you can ill afford on a very tight budget.

Most of the account-opening incentives on offer are hardly worth the bother once you understand the real value of a large interest-free overdraft facility. The possible exception to this is the deal from NatWest. Students who are not reliant on a huge interest-free overdraft to help get them through university, and will be using the train to get to and from college, should take a look at the account from NatWest which comes with a five-year 16-25 Railcard worth £130.

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

Great new mortgage rates on offer

figures from the Council of Mortgage Lenders this week revealed that gross mortgage lending in June was an estimated £13.1bn, a 15 per cent increase from £11.4bn in May and a 7 per cent increase from £12.2bn in June last year.

There are signs that house prices are starting to flatten out with more properties coming on to the market since the scrapping of home information packs. Even though the levels of activity are still quite low, there is no shortage of good mortgage deals on offer.

Yorkshire Building Society is offering an exceptional five-year fixed rate of just 3.99 per cent with a £995 fee for up to 75 per cent loan to value (LTV).

There are also some new capped-rate deals, from Coventry Building Society, including a 2.99 per cent variable rate capped at a maximum of 3.99 per cent with a £999 fee for up to 65 per cent LTV.

On the savings front, Derbyshire Building Society is now offering a best-buy three-year fixed-rate bond paying 4.10 per cent AER with the option to receive interest monthly if you so wish.

Meanwhile, Saffron Building Society has launched a regular saver account paying 4.00 per cent AER fixed. Unlike many regular saver accounts, it is very flexible in that unlimited penalty-free withdrawals are permitted.

Andrew Hagger is a money analyst at

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