When you decide to take the leap into student living, there are a huge number of housekeeping tasks that need to be taken care of before the fun can begin. Inevitably you'll be bombarded with jargon from a whole variety of different sources, one of the most important of which is where you're planning on keeping your precious student loan.
Before we get into the nitty gritty of specific student accounts, let me explain to you a few of the key phrases that you'll need to get your head around in order to find the best bank for you.
You'll want to know about this one. An overdraft is a set amount (say £ 1000 for examples sake) that you can borrow from your bank once all your money is gone. Student overdrafts are interest-free, even you can still incur transaction fees and interest costs if you go over your overdraft limit.
Picking an account with a huge overdraft limit may seem tempting, but you have to consider whether or not it's what you need. If you know you're likely to blow it all on a series of nights out, then you should probably pick an account with a lower limit.
Interest rates apply to both saving and borrowing. In comparison to a normal bank account, your student account is reliably safe from borrowing interest rates while you're still a student. This period of time will (sadly) come to an end however, and you'll need to consider how quickly you need to pay your overdraft back before it starts incurring interest.
Interest savings rates are important, too. For example, if you manage to stay in-credit of £ 500 all year round, and your interest rate is 2%, then you'll earn £ 10. However, many banks do not offer any sort of in-credit interest rate for their student customers and you might want to consider a savings account for all that extra cash.
A word that will no doubt make your heart leap over the next 3 years. Banks offer all sorts of freebies in order to entice students in, some more useful than others. From money off your mobile phone, to a free discount travel card … it's up to you where your priorities lie.
Banks & Their Account Features
Increasing interest-free overdraft
o Starting at £ 1000 in your first year, this overdraft increases by £ 250 every year and is available for 5 years.
Student Credit Card
o £ 500 maximum credit limit
o 56 day interest-free period on your purchases if you pay on time
o Representative 18.9% APR (variable)
o Free 16-25 railcard. Gives you 1/3 off rail travel.
o Student discount card (New Look, Apple, Subway & others)
o Must deposit at least £ 750 every 6 months
o Make at least 3 debit transactions every month
The freebies are certainly tempting here, and NatWest's overdraft system is a sensible one. In your first year, they even break up your £ 1000 into terms, so you do not spend too much at once. However, beware of the credit card. Getting into surplus debt is not necessarily the best of ideas.
Large interest-free overdraft
o Instant £ 500 upon opening your account
o Up to £ 3000 (subject to status & account conduct)
o During your first year, the first £ 1000 in your account will earn interest at 1.5% AER / gross above base rate
o Apply as soon as you have proof of your uni place you get the full benefits of the student account & 25% off Lonely Planet Travel Guides
o Student Bursary Competition – giving 8 students the chance to win £ 15,000
The offer of in-credit interest in your first year of study is fairly unusual, and could be worthwhile if you're good at saving. HSBC also offer a student credit card with a £ 500 limit, however their card is subject to your account conduct. HSBC certainly appears to reward sensible spending, which is a positive.
o Maximum £ 2000
o Earn 1.00% AER (variable) interest on balances up to £ 500
o Open an account between 16 April and 30 June and get £ 50 paid into your account in July
A good in-credit interest offer, and the £ 50 is a nice incentive if you're opening an account in 2012. However this is a fairly simple account, which may not offer you everything you need.
Understanding the basics is vital when you're looking for your student account. Everybody's priorities are different so the 'perfect' account does not exist, but knowing where you stand when it comes to overdrafts and interest rates is hugely important. Be sure to shop around for something that suits your needs, and do not be fooled by marketing gimmicks.