8 things to consider when choosing a student bank account
Find out how students can take full advantage of being the bank’s favourite customers, without getting stung
Owen Burek is founder of the student money website www.savethestudent.org and more recently the graduate advice site www.savethegraduate.org. As well as publishing 'The Essential Student Guide to Finance', Owen is a frequent writer and commentator for various publications, and has made live appearances on BBC News.
Tuesday 20 August 2013
You’ve heard it all before: university is set to hold some of the best years of your life. And for once, the banks are playing ball.
Their generous offering of a special bank account just for students often comes with many perks, but with so many enticing offers along the high street it can become a little bewildering when trying to make the right choice.
On that note, here are eight things worth considering before pledging your allegiance to Bank X.
The banks want YOU
Call me cynical, but it’s important to realise why the banks all want to be your best friend right now. Being young with good salaried career prospects, university students are a very lucrative customer base for them. The vast majority of people stick with just one main bank over their lifetime.
However always remember that - in the words of a certain dating show host - the power is in your hands! You have the freedom to choose (and switch between) any bank and there is absolutely no need to show any loyalty. Play the game.
Beware of the freebies
We all know there’s rarely such a thing as a free lunch. In the case of banks, freebies are used as the carrot to get you through their fancy revolving doors.
It’s best to convert any free offer into a monetary value. Generally speaking, they aren’t worth bothering with because you’ll probably be compensating on other longer term perks.
A bank may be offering the coolest laser-pointing watch with inbuilt compass worth £30, but you could unknowingly be making the choice between eating well and just surviving on 11p noodles all year.
So what is the best perk to look for?
Go for the largest overdraft
By far the most notable benefit of a student account is getting your mitts on a 0 per cent interest overdraft which can be as much as £3,000. It’s not free money as you will have to pay everything you borrow back, but it’s the closest you’ll get to it for the time you’re a student. Even the student loans company charges you interest these days…
So for most students, your top priority in choosing an account should be signing up for the bank that offers the highest interest-free overdraft over your total years at university.
Grab a magnifying glass
For the small print, of course. Somewhere in the middle of it all, you may come across a few strings attaching themselves to the advertised overdraft.
Be wary of the phrase “up to” and make sure that you know what you are likely to receive, or which banks are offering overdrafts that are guaranteed to all students. Just because a certain bank appears to have the highest overdraft does not mean you will ever actually get that amount.
It may be that you won’t get the maximum until your final year. The majority of student account overdrafts are tiered, meaning your overdraft will slowly increase each year.
To reveal the numbers that matter it’s worth comparing the banks side-by-side for this year here.
Beware of bank charges
As long as you are responsible with your spending, this shouldn’t be too much of an issue but many students get stung by various bank charges. Going beyond your agreed overdraft is the most common and can set you back as much as £12 plus interest.
It’s a good idea to doublecheck what the charges are for your prospective bank and they will be outlined in the terms.
Remember, you have to pay it all back
Just like the aftermath of a student loan shopping spree, it’s going to hit you at some point that you’re going to have to pay it all back. It’s really important to have the right mindset. Think of the overdraft as a safety net only, it’s not a green light to live your life like The Great Gatsby.
The good news is that you can flex your disloyal muscles and switch accounts after graduating to one that gives you up to three years to pay it back without interest. Or you could consider the repayment term as another factor in choosing a bank now.
What if you don’t need the overdraft?
If you happen to have a nice cushion of savings or feel that you are shrewd enough with your money to forgo borrowing the maximum overdraft, then you may be interested to know it’s still well worth taking advantage of the offer whilst you can.
By using a well known technique called ‘stoozing’ (usually attributed to credit cards), you could actually earn money from your 0 per cent overdraft by putting it into a savings account which pays out interest.
Over several years, this can really add up. When the time finally arrives and your bank is demanding their money back you can simply skim off the interest you’ve earned and use the remaining amount to clear your debt and bring your student account back into the black.
Location, location, location
The world is changing and the new era of banking has seen the introduction of Smartphone apps and online accounts. So the location of your nearest branch is not as important as it once was.
However I can pretty much guarantee you will need to pop in within your first semester to hand over documentation, speak to an advisor or cash in a cheque from grandma. Therefore choosing a bank that has a branch in or around your university campus can have its benefits.
Bundled in with this is customer service. It’s always worth choosing a bank that goes the extra mile.
With all of this advice in mind you should now be well placed to choose the student account that provides you with the greatest benefit. If possible, it can be worth waiting until early August when the major banks release their full terms and conditions for the coming year before making your decision.
Owen Burek is a student money expert and the founder of www.savethestudent.org.
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