Very best pupil bank accounts (and the worst for costs)
Banks have already unveiled their offers to students, including interest free overdrafts and money-off deals. This guide debunks the deals and explains how to avoid unexpected fees Students can sort out their finances before heading to university and avoid the freshers’ week scramble
School leavers heading to university, with results day behind them, can now focus on picking the best current account.
University fairs will be awash with banks offering generous interest-free overdrafts and other perks, but banks are already advertising their student-only deals.
Don’t be misled by bank deals and comparison websites. The overdrafts that banks advertise are maximum amounts that usually aren’t available to first years. Freebies may also be tied to using the account in a certain way, such as by paying in a minimum amount.
There’s also no such thing as a student discount when it comes to bank charges – undergraduates face fees of up to £5 a day for spending over their limit.
• See the table below for the best overdraft and incentive deals on offer – and the charges to avoid
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• Graduates: to get a better current account deal, see our one-stop guide for recent university leavers
Best incentive: free 16-25 railcard
At the top of the freebie list is Santander’s four-year railcard. This would cost £100 to buy and gives a one third discount off rail travel. The catch is, students must pay in £500 each term of their studies, otherwise the card could be cancelled.
HSBC offers £60 at Amazon to new student customers – but only if you open the account before November. RBS and NatWest give students a Taste Card (normally £80) that offers two-for-one at some restaurants. Lloyds and Bank of Scotland offer money off food bills by giving away an NUS discount card (normally £12) that gives 10pc off shops at the Co-op Food.
Confusing overdraft offers
Free overdrafts are once more the main attraction of this year’s student deals. Halifax and HSBC advertise the biggest overdraft at £3,000 while the Co-operative , RBS , NatWest and Lloyds are price-matching theirs at £2,000.
But interest free offers are not always as attractive as they appear. Barclays advertises its £2,000 overdraft – but open an account and your initial limit of £200 will be a fraction of this. Students who opt for Bank of Scotland and TSB Bank must wait three years before they can use their £2,000 limit – by which time many will have already graduated.
Don’t get caught out by assuming that you are automatically eligible for headline overdrafts. Students who sign up to the RBS and NatWest accounts, which offer £2,000 interest free, will find that they actually only receive £500 limit in their first term. Fail to meet the condition of paying in £750 to these accounts, and students are charged 20pc interest.
Currently the most generous overdraft that first years will really receive is from the Co-operative , which offers £1,400 interest free once you pay in £300.
Worst culprits for bank charges
The worst offender for hefty fees is Santander, where a daily fee of £5 kicks in if they go beyond their arranged overdraft limit (minus a £12 buffer). The account offers up to £1,500 interest free to first years on the basis that students pay in £500 a term.
Don’t get caught out by assuming that you are automatically eligible for an overdraft. RBS and NatWest specify that students must arrange their overdraft before going into the red. If the account goes into overdraft without being approved, students are charged £6 per transaction.
HSBC is the only bank that does not charge students for going over their overdraft limit. Unusually, it does not offer a tiered overdraft that rises with each year, but offers up to £3,000 depending on a student’s circumstances. Students are never charged for exceeding their agreed amount, but the bank may block future transactions.
Overdrafts are not comparable to a student loan that allows students to be in debt for the duration of their studies. All major banks state that overdrafts are repayable on demand.
Always approach your bank before exceeding the overdraft limit. If a Co-op student account holder exceeded their interest free amount, they would be charged 9.9pc as long as they arranged it with the bank. Fail to tell them, and the interest rate rises to 18.9pc.
Banks also offer a buffer to students who go a few pounds under their account balance. If you are down to the last £5 of your current account at the Halifax, they would allow you to spend, say, £10 without charge, and would contact you to let you know you are at the end of your limit.
Rachel Springall, a finance specialist at Moneyfacts.co.uk, said banks can be flexible about student deals. “Students can always speak to their bank if they need help with their overdraft.
“Parents can help their children with finances if they do get in a bind, such as sending money or giving them a pre-paid card,” she said.
Even without unplanned debts, an overdraft can be a useful earner. Take the interest free amount and transfer it to a savings account or Isa. Currently the best easy access savings rate is 1.75pc offered by Nationwide.
If you’re earning, student accounts also offer interest on positive balances. Currently Santander pays 3pc on balances of £300 to £2,000 and HSBC offers 2pc on the first £1,000.
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