This article is for the student accounts available in for the 2007/8 academic year.
It's updated annually every July/August once all the new account details are announced.
Bank managers love 18 year olds! School leavers, whose pockets are laden with only coppers, make financial institutions salivate thinking about future high earners. Thus they’re willing to throw cash at them, meaning pick the best student bank account and you could save more than £1,000 over three years.
And this isn't just for new students, current students can ditch and switch to the best account too.
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Put simply it's a day-to-day current account specifically for students in higher education, with beneficial rates and terms.
What is a student?
This isn't philosophy, but pragmatics. Each bank defines students differently. For example, Barclays states you must be on a degree, degree-equivalent or postgraduate course while HBOS simply asks that you be over 18 and in full-time education at university or college. Those on non-Bachelor degree courses should always check eligibility criteria. See the Student Accounts: Who Takes Who table for more details.
When to open an account?
The simple answer is ‘as soon as possible'. It used to be necessary to wait until you were at university, but now most banks accept anyone with a UCAS offer letter (whether conditional or unconditional). Therefore, it's usually possible to open an account before the start of term and bag an extra month or two's worth of preferential terms.
Beware, Freshers' Fairs!
Students' Unions, normally fierce protectors of students' rights, sometimes sell exclusive access to their new students’ fairs to the highest bidding bank to bolster the Union's funds. As a former Students' Union President I remember the negotiations myself! Unfortunately this often fails to incorporate which the best account actually is, it's generally about who pays most.
Almost every bank offers access via the internet and allows free withdrawals from all cash machines, so which branch is ‘nearest' nowadays has little relevance for most able-bodied students. Therefore the comparison should be purely on ‘what they're offering'.
Forget the freebies
Bizarrely, with student accounts, the much (and rightly) berated big high street banks are massively the winners.
The reason is transparently simple; they're aware if they capture lucrative young customers now, most people are sadly loyal for much of their life. Thus they can cross-sell them often poorly performing mortgages or credit cards, and later shift them in to dismal standard current accounts to rake back their profits.
Therefore, while it's important to choose the right student account, don't let their short term bribe buy you for life. Grab this cash, then once you finish, ensure you ditch and switch to the Best Graduate Account and once that's done, the Best Bank Account.
Go for the overdraft
Banks try to bribe students with freebies but these sweeteners should at best be an afterthought. First consideration must be the interest-free overdraft.
An overdraft enables you to withdraw more money than you have, in other words to borrow it. As the average student is likely to graduate owing £12,500, this is usually necessary; so the question to ask is ‘how much do I pay to borrow it?' (If you're not sure what interest and interest rates are, read the Interest Rates: Beginners' Guide).
Most student accounts offer interest free borrowing, which means they don't cost anything providing you stay within the limits. This is as good as it gets; and a much bigger gift than any freebie. Therefore the question that pays is, ‘which bank gives the most 0% borrowing for the longest?'
A couple of stark warnings about overdrafts though:
- Never go above the agreed limit without permission.
If you do, the cost then skyrockets, with huge swathes of interest and penalties. Always talk to the bank first; getting it wrong can leave you with credit problems lasting years. While you may’ve heard about Reclaiming Bank Charges, the best advice is still avoid them in the first place. - Never borrow more than you have to.
Just because you're not paying interest doesn't mean you won't need to repay the debt. Never borrow unnecessarily; remember once you graduate you'll pay for these debts so budget as best as you can and never pay or spend more than is absolutely necessary. Borrowing is dangerous; please educate yourself about how it works before doing it in any incarnation. There's more info in the How Interest Rates Work and Student Finance guides.
What about ‘in-credit' students?
Even that rare student breed, those likely to be in credit, could opt for the biggest 0% overdraft, and use a budgeting technique I call ‘deficit banking'. The premise is to keep as big a negative balance within your 0% limit as possible and put most of the money in a High Interest Savings Account (tax-free for most students).
This means interest is earned on money the bank lends for free. Doing this could add around £500 to a student's coffers over the time of their studies and similar tricks are possible with student loans, though not as lucratively (see the Student Funding article). However this should never be seen as an inducement to borrow more and it will take some financial discipline.
….and finally the freebies
The value of the gimmicks, freebies and even cash bribes is usually pallid compared to interest-free overdrafts. However when the difference is small then a freebie comparison is a great tie-breaker. It also prompts the question, “can I open more than one student account?”
A few years ago there was no problem, but now the banks are tightening up on this, either committing you to agreeing to use just its account when you apply or to at least use it as your main account by depositing your student loan or main income; so multiple-freebie grabbing is getting much more difficult.
On paper the winner by a mile, for courses of any length is Halifax Bank of Scotland (HBOS) as it allows a maximum interest free overdraft of £2,750 every year, meaning its average limit over the life of a three-year course is more than £1000 above the next highest.
The problem with this is it's an upper limit, and you don't get the full amount immediately; most will receive £500 initially. You can then request increases during the academic year, yet these depend on a credit score and aren't guaranteed. Yet feedback from a similar offer in 2006-07 is that by the end of the first year, most should have access to the full £2,750.
This does mean however, some students won't get it. This is rather annoying as there is no way to find out without getting the account. Yet as the limit is so much higher than any other account; it's still the lead account to plump for.
The alternatives
The one alternative worth considering is NatWest; it has lower overdraft limits at £1,250 in year one, £1,400 year two and £1,600 year three, however if you need to go over your limit and it agrees (by no means guaranteed) any further borrowing is at 0% too.
Yet the main reason for considering it, is it offers a free 5 year Young Person's Railcard which would cost around £100. So if you're a regular train traveller likely to use it, this is a boon as it cuts 1/3 off many train fares (see the Cheap Train Tickets article) . Your card will only be renewed each year provided you’ve used the account within the previous 3 months.
Are you a ‘Scottish student’?
If you are there's another alternative. RBS (Royal Bank of Scotland) offers the same 0% overdraft levels as Natwest (though authorised borrowing beyond your overdraft limit isn’t 0%), but gives a freebie choice of £100 cash or a three year railcard. Obviously if you want a railcard, plump for Natwest’s longer version; but if the hard cash is tempting, this is worth a look.
Now rather strangely, RBS is being a tad murky about confirming the definition of ‘Scottish student’; yet if the cash appeals to you and you're Scottish, a Scottish resident or going to Uni in Scotland; it's worth giving it a go.
The current offer by HBOS is massively better than any others – thus if you are a current student going into your second or third year, you may want to take advantage (though do confirm it will at least match your current limit initially). It will allow existing students to transfer their accounts over and get the same terms as others in their year of study.
Those considering opening more than one account for freebie-grabbing, though, should bear in mind it’s a condition of HBOS’ overdraft that you must pay your student loan into the account to get it.
It's worth going in and having a chat. Even existing HBOS student account holders who don’t already have this limit can try applying to increase their overdraft limit if they haven’t already provided they go into a branch with proof of intended funding (i.e. student loan documents).
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