By Ben Salisbury
Deciding on the best student bank account may not appear to be the most attractive way to spend your fresher’s week. However, making the right decision could save you hundreds, perhaps even thousands of pounds during the course of your studies.
THE most important benefit of any student bank account is the amount of interest free overdraft the bank offers. The more the better.
The vast majority of students will go into debt early in their student life and remain there throughout their studies and most likely for a year or two afterwards. This is the reason that the account with the highest interest free amount and longest interest free period is the priority account feature to be taken into consideration.
There is nothing wrong with being in debt as a student but there is something wrong with paying money to your bank when you could avoid it.
So, although free railcards, iPods, even cash incentives can be tempting you should get the bank account that gives you the highest amount of interest free overdraft for the longest period of time and then make sure you don’t go over the limit.
Otherwise you will almost certainly be paying between 20 and 30 per cent interest on the full amount if you have not agreed an alternative arrangement with your bank.
You need to check that the interest free overdraft period covers the full length of the course. The last thing you need as you enter the final year of your degree is to discover your bank is pulling the plug on your £2,000 overdraft when you are at the business end of your course.
In reverse order let’s take a look at the top five student bank accounts:-
The Santander student account has a fairly standard interest free amount of £2,000 (all of the top 10 student bank accounts have this) but it is tiered, so that you can go up to £1,000 overdrawn in the first year without paying any interest rising to £2,000 by the end of a five year course. “>
The account pays 2 per cent interest on credit balances up to £500. It also offers excellent free insurance on mobile phones, gadgets and laptops which could be useful and save you money on an extra insurance policy. The bad element to this account is that you will pay a whopping 28.7 per cent on any unauthorised borrowing.
The Natwest student account is a good all round bet. It has a tiered £2,000 interest free limit rising from £1,000 at end of year one to £2,000 by the end of year five. “>
The unauthorised rate of borrowing is a competitive 17.79 per cent. The benefits on offer are good. They include a free five year 16-25 railcard, a discount card offering 20 per cent off at selected retailers and £100 off an Asus laptop.
The reason why the HSBC student account makes it to number three in the list is because if you have to arrange an authorised overdraft after you have breached your £2,000 interest free safety net you will currently pay 3.5 per cent, which is less than half of any other major student account. “>
The rate is 3 per cent above the Bank of England base rate, which has been at a record low of 0.5 per cent, so it could go up. It has been at that level for 18 months now though so it is unlikely to go up by very much in the next year.
With this account you also get the £1,000 rising to £2,000 in year five interest free overdraft. This is also the account to go for if you are confident you will consistently keep a credit balance because it pays 2 per cent on balances up to £1,000.
2) Lloyds TSB
The Lloyds TSB student account has an interest free overdraft limit of £1,500 in years one to three rising to £2,000 for years four to six. The authorised overdraft rate is competitive at 8.2 per cent. The account comes laced with some good extras such as a free NUS card that will enable you to make further savings, commission free foreign currency and 40 free music downloads from eMusic.”>
The reason the account makes it all the way to number two on our list is because, despite the warnings, lots of students will go over their agreed limits. If you do, Lloyds is the account you want, because it only charges 8.2 per cent on unauthorised borrowing. This is less than half of any of the rival accounts and more than 20 percentage points less than Santander’s student account, number five in our list.
The top student bank account for the vast majority of students is the Halifax student account. This is because it offers a £3,000 interest free overdraft which is available from year one of your course right through until a year after you graduate on courses from three to five years.”>
This means you can immediately get your hands on £3,000 paying no interest for up to six years. You should avoid spending this if you can but it is the best offer out there.
You could open the account and immediately transfer £3,000 to an ISA and leave it sitting there earning interest as long as you deposit some other funds in occasionally, make the odd withdrawal and don’t go over your £3,000 limit. In theory you could transfer the £3,000 back into the Halifax student account at the end of your course or up to one year later and just pocket the interest you made on the ISA account.
Of course, most students will need to use the money, which is why it is the top student account. The other benefits to this account are that apart from HSBC it has the best rate, 7.2 per cent, on any authorised borrowing you agree. You receive 25 per cent off AA membership and commission free foreign currency.
For more information on how to manage your money at university, read our essential guide to student finances
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