Forget the freebies and look for the largest overdraft going

Forget the free gifts, a good student account will more than pay off in the long run, says David Prosser

Britain's biggest banks love students. They may not make much money from them straight away, but the banks know most customers signed up in Freshers' Week will stay with them for many years to come. That makes students a prime target for the banks' marketing efforts, which will go into overdrive over the next fortnight as this year's intake heads off to college.

However, Stuart Glendinning, managing director of price comparison service Moneysupermarket, says there are just three factors most students should consider before choosing a current account for university - and none of them are the freebies on offer. Most important for the majority of students, Glendinning says, is the amount of interest-free overdraft on offer. All student bank accounts come with the offer of a 0 per cent overdraft, up to a certain limit, which rises each year.

There may also be special deals available, with particularly large overdraft facilities for students on longer courses. Halifax Bank is almost alone in not offering tiered maximum overdraft levels and is also the most generous in terms of the borrowing facilities available. Students are entitled to an interest-free overdraft of up to £2,750 throughout their courses.

The second issue to check is whether there any other charges you might face. Unauthorised overdraft charges are swingeing with all the student accounts, but you may be able to negotiate an extension to your authorised borrowing, albeit on the bank's standard interest rates. Also think carefully about the cost of credit cards. These can be a useful source of extra borrowing - as long as you have money coming in to refund repayments.

Barclaycard's student credit card is the cheapest, with an interest rate of 14.9 per cent a year. It also has the highest minimum repayment - 5 per cent of your balance each month - which could be a useful discipline.

The third factor Glendinning identifies is whether there will be easy access to cash and a bank branch near to where you'll be living and studying. While students have the same access to cash machines as other account holders, many banks maintain branches on or nearby university campuses. These will have specialist student advisers, which can be very useful.

Most of Glendinning's advice is aimed at the typical student, who spends most of his or her university career in the red. However, there are students who remain in credit for much of the time. In which case, look for an account offering a decent rate of interest. Smile tops the tables with a rate of 3.04 per cent a year, followed by Halifax, paying 2.02 per cent.

So what about those freebies? For students, weighing up accounts on the basis of incentives, the choice is between practical and trendy. In the latter camp, HSBC offers an MP4 player, while Lloyds competes with a free iPod shuffle.

Fun, but NatWest's free Young Person's Railcard, which gets you a third off rail fares, and Barclays' free National Express Coachcard may be better value for students living away from home. In addition, all the banks offer variations on the theme of discounts off shopping, as well as cheap or free offers from other parts of their businesses.

Finally, it's worth bearing in mind what will happen when you graduate in three or four years' time. "Students should make the most of being courted by the banks but recognise that, though little profit may be made out of them while they are studying, payback will start after they graduate," Glendinning adds.

In theory, it is possible to change bank on graduation. In practice, since most graduates are young tenants and only recently employed, they won't have had a chance to build up a good credit profile. This may mean they are stuck with their existing bank, missing out on offers from rival account providers.

The banks' offers to graduates change every year, but this year, the most generous deal on offer, in terms of the cost of borrowing and how long graduates may remain overdrawn, comes from Barclays. It charges 9.9 per cent on authorised overdrafts of up to £3,000 in the first post-university year, reducing to a maximum borrowing limit of £500 in year four.