Student life brings with it a different kind of learning curve as young people across the country embark on a new adventure and try to find ways to make their money go further. And in a cost of living crisis, the curve is even steeper. A survey carried out for the personal finance website Save the Student last year showed that 82% of students worried about making ends meet, while one in 10 had resorted to using food banks.
Choosing the right student bank account won’t magic away your money worries but it could help to provide a buffer zone when your balance creeps into the red, and perhaps some helpful perks, too.
Borrow for less
The biggest difference between a student bank account and a standard current account is the overdraft, says Tom Allingham, a spokesperson for Save the Student.
“Usually you’re charged interest for using this facility, but with a student bank account, you’ll get an interest-free allowance to act as a buffer if your balance drops below zero. Most student accounts will have an interest-free overdraft of at least £1,000 but the maximum allowance may not be available until your second or third year, and you may have to apply for higher amounts to reach the cap.”
For anyone who is likely to require credit – which essentially means most students – it is an extremely useful, perhaps even essential, facility.
“Make sure you look for the biggest possible overdraft amount on offer, as it will help when managing your student finances, allowing you the flexibility to go into the red without a financial penalty and avoid other more expensive forms of debt, such as loans, credit cards or standard overdrafts,” says Kara Gammell, a personal finance expert at MoneySuperMarket.
However, it is not only a question of trying to find the largest overdraft, says Sarah Coles, a senior personal finance analyst at the investment platform Hargreaves Lansdown: “They work in different ways, and there are different levels of overdraft on offer, so you need to decide what’s most important to you and find the account offering what you need.”
So, for example, HSBC and Nationwide offer some of the largest total interest-free overdrafts in your third year (up to £3,000) but NatWest/Royal Bank of Scotland offers up to £2,000 in the first year.
The quoted headline overdraft limit is not necessarily the amount you will be able to access when you apply. “If [an overdraft limit is advertised as] ‘up to’, you will be credit-checked, and what you get is dependent on your credit record,” Gammell says. “The thing is, students will naturally have a limited credit history, so it’s even more important to check this out first.”
Overdraft limits are not always set in stone, Coles says. “In some cases you will get an interest-free overdraft from the outset, and some people will get higher limits in subsequent years. Others advertise overdraft levels as ‘at least’, which means this level is guaranteed, but some people will get more.”
It’s important to keep an eye on your balance and ensure you don’t go over your agreed limit; any subsequent increase in credit is far from a given. You will need to apply for an increase, and whether or not you get it will depend on how you have managed your account.
Don’t be swayed by perks
An overdraft is a must-have for the majority of students but banks are very keen to attract customers with some nice-to-haves, too.
After all, if a bank convinces you to sign up to a student account, chances are, they will have a loyal customer years after they have left education. “We know that many people do have a long relationship with their bank, retaining a bank account throughout different stages of their life,” says John Dentry at Pay.UK, the organisation behind the Current Account Switch Service.
For example, NatWest, RBS and HSBC offer students hard cash, with £100 cashback for new customers.
Other banks tempt newcomers with discount cards, such as the free four-year 16-25 railcard from Santander, providing a third off the cost of most rail travel (the usual cost is £30 for one year or £70 for three years), or money off food with a Tastecard from NatWest and RBS, valid for four years and offering deals such as 50% off your food bill and two-for-one meals. Then there are “softer” incentives, such as HSBC’s offer of one year’s subscription to the meditation and mindfulness app Headspace.
Whatever the deal, for those who are likely to need access to credit, that interest-free overdraft facility should still be a priority when choosing. “People often focus on the freebies that come with student bank accounts but often they’re not as valuable as they seem,” Allingham says. “While £100 in cash is hard to argue with, shopping vouchers, railcards and Tastecards are more of a mixed bag. For example, what use is a shopping voucher if it’s not for somewhere you’ll actually go? What’s more, while the bank may say a Tastecard or railcard is worth a set amount each year, both are often on sale and can actually be bought for far less. And above all, no freebie is worth choosing over a larger overdraft.”
And while HSBC’s Headspace freebie is a nice add-on, a year’s subscription via the app would cost £7.99 with Headspace’s 85% student discount.
Get your paperwork ready in advance
There isn’t a specific time you should set up your student account but you may want it ready to go for when you start your course, Gammell says. “That way, you’ll have access to all the features of a student account when you begin your studies and know where you’re at with your finances – particularly if you’ll need access to an overdraft.” You will need to provide proof of your student status when you apply, so it may be worth setting up your student account as soon as you have confirmed your place at university.
“If you’re looking to open a student account, make sure you have all the documents you need in advance,” Allingham says. “This is likely to include at least one form of ID, some proof of address and some proof of your status as a student, which could be a letter from your university or a Ucas offer letter. But each bank will have its own criteria, so check before you apply to save yourself time and hassle.”
For people moving to the UK for their studies, things can be more complicated. Banks generally require you to have been resident in the UK for three years before you can open a UK student account. HSBC does have a dedicated international student account, and you may be able to open a standard account with other banks.
Consider switching midway through your course
“Students can absolutely switch bank accounts during their course, and it’s definitely worth considering if your current provider doesn’t offer as big an overdraft as you need,” Allingham says. Save the Student’s guide to the best student bank accounts outlines the offers available and specifies whether or not you can still qualify for a perk if you sign up when you are already a student.
“We always encourage people to regularly assess whether the account they have is right for them, and to consider the benefits of switching,” Dentry says. “Different banks and building societies offer a host of services that could benefit students … There are a variety of benefits that can come with reassessing your banking provider.”
Several banks allow you to switch existing student accounts during your studies. If you are not happy with yours, check to see if you can switch, and that your overdraft limit matches what you already have, Gammell says. And, adds Coles, beware restrictions: “Some accounts will let you switch in at any time during your course. Others will let you switch as long as you have two years left of study, and some are only for first-year students.”
Choose the right graduate account
In most cases, your student account will get its own “cap and gown moment” at the end of your course, when your bank shifts you on to its graduate account.
“Most student bank accounts become graduate accounts when you leave uni, and give you an interest-free overdraft for at least another year,” Allingham says. Lloyds, for example, moves graduating students on to its Graduate Account, which lets customers apply for an interest-free overdraft that gradually reduces each year; up to £2,000 in the first year, up to £1,500 in the second year, and up to £1,000 in your third year post-graduation.
Some banks keep customers in their existing student accounts after graduation, although account holders might only have perhaps a year in which to pay off the overdraft before interest is charged.
Not all banks allow you to switch to a graduate account as a new customer. If you have the foresight to do so, of course, you could change accounts while still a student, with a view to benefiting from the most suitable graduate account for you when the time comes.