Money Insider: Off to college? Don't let the banks bamboozle you

 

A free overdraft is more beneficial than student bank account freebies.

Even though the ink has barely dried on this year's A-level results, students will soon be busy making their university arrangements for the autumn, and that includes sorting out a student bank account.

No matter what the economic climate, banks are always eager to grab a slice of the new student intake.

After all, they're the potential big earners of tomorrow and the banks will be hoping to sign them up for their profitable insurance, pension and mortgage products in later life.

The big high street providers have all 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 2013.

However, the most-important element of a student bank account for most people will be the ability to borrow as much money as possible, as cheaply as possible.

So even though free music downloads or restaurant discount cards may sound tempting, the following numbers should convince you to give the gimmicks a wide berth.

If you can borrow an additional £1,000 interest free, you would save around £90 to £100 every year compared with a student account charging you interest at a rate of 9.9 per cent with Co-op Bank or 8.9 per cent with Barclays for authorised borrowing.

That's a massive saving over the course of your time at college and it 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 interest free from year one, then Halifax, HSBC or Barclays should be your first choice. But remember, you have to apply for your overdraft limit – it's not granted automatically.

Also be aware that some of the banks will limit how much you are able to borrow each term.

Whichever bank you choose, make sure you don't go over your interest-free limit as you could end up paying hefty charges which you can ill afford on a student budget.

The only possible exception to the rule regarding incentives, and one offer that may be worth a look this year, comes from Santander.

All new accounts are eligible for a free, four-year 16-25 Railcard, a benefit that could prove a big money saver if you plan to use the train frequently to get to and from college.

The Railcard cuts student rail fares by a third, but just remember the maximum interest-free overdraft available from Santander is £2,000.

Money tips for students

Sign up for your student bank account before you get to college and avoid the queues. You can open the account at the branch where you live. If there are a couple of accounts that meet your needs, check which one has a branch on campus – it's easier and cheaper to be able to pop in to talk to someone if you have a query.

Try to avoid the urge to sign up for a student credit card, but if you really must have one in your purse or wallet make sure it's only ever used for emergencies.

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

Budgeting may sound dull, but it's got to be preferable to 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 any money problems you have: they won't go away and could end up distracting you from your studies.

Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk

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