Top Student Accounts 2008/09

21 May 2009. IMPORTANT. This guide was last majorly updated in July 2008.
We are currently re-researching the top accounts and freebies for 2009/10 and will be publishing the rewritten guide shortly.

Bank managers love 18 year olds! School leavers, while their pockets are laden with only coppers, make financial institutions salivate over future high earnings. To bag their custom, banks throw out cash, in the form of 0% overdrafts and freebies. As these get better each year, both new and existing customers should switch to the best to gain £100s.

• What is a student account?
• Picking the top account
• Best Buys: Top student accounts
• Existing students switch too!
• Other Articles/Discuss

George hit the books on his first day

What is a student account?

Put simply, it's a day-to-day current account specifically for students in higher education, with beneficial rates and terms. The only question is, What Counts As A Student? This varies from bank to bank.

When to open an account?

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 (conditional or unconditional). So it's possible to open an account before the start of term and bag an extra month or so'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 the uni the most.

Picking the top student account

Almost every bank offers online access and free cash machine withdrawals, so which branch is nearest has little relevance for most able-bodied students. Therefore the comparison should be purely on ‘what's on offer'.

Go for the overdraft

Banks try to bribe students with freebies to entice you to open an account with them; but these sweeteners are only a secondary consideration.

Focus on the banks that'll give you the biggest and longest 0% overdraft facility

All student accounts offer overdrafts, enabling you to withdraw more money than you've put in there, i.e. to borrow it. As this year's average student is likely to graduate owing more than £20,000, borrowing cash is almost certainly necessary; so the question to ask is ‘how much do I pay to borrow it?' and the answer depends on the interest rate. The lower the rate is, the less the debt costs you (read a full Interest Rates Beginners' Guide).

When it comes to students, bank allow you to borrow interest free, PROVIDED you stay within the limits; and this is as good as it gets, but a much bigger gift than any freebie. Therefore the question that pays is, ‘which bank gives the most 0% borrowing for the longest period?'

A couple of stark warnings about overdrafts though:

• Never go above the agreed limit without permission

  If you do, the cost skyrockets, with huge swathes of interest and penalties. Always talk to the bank first; getting it wrong can leave you with credit rating problems, lasting years. While you may’ve heard about Bank Charges reclaiming, this isn't easy, and by far the best practice is to avoid them in the first place.

• Never borrow more than you need

  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 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 Student Finance and Interest Rates guides.

• You will be credit scored

  When you apply for any debt product, including a bank account with an overdraft, the lender will credit score you. This is to decide how desirable a customer you are based on behavioural predictions from all your prior financial data.

  Yet as a student, it's likely there will be very limited data on you, which makes credit scoring very difficult. Sadly this can leave some students rejected due to ridiculous anomoloies, and there may be no rhyme, reason or solution to this. For more info read the Credit Scoring guide.

Should I ignore the freebies?

The value of gimmicks, freebies and even cash bribes is pale compared to interest-free overdrafts, but when a number of different accounts offer similar overdraft levels, then freebies are great tie-breakers.

Always remember why freebies are offered though.

Banks know most customers never switch, so they hope a £50 freebie buys your customer for life

It's for this reason that while the big high street banks are usually the least competitive providers, in the student market they're all fighting it out with super hot products. They know that if they get you now, they can make serious bucks out of you for a long, long time.

However, if you're savvy you'll take advantage of this. Choose the right student account and max out your gain from it, however vow not to let their short term bribe and free overdraft money buy your customer for the long term. Grab what's on offer, then once you finish studying, ditch and switch to the Best Graduate Account and eventually the Best Bank Account.

Freebie grabbing also often prompts the question, “can I open more than one student account?”. It used to be no problem, but banks criteria are now tighter. Many make you commit to depositing your student loan or main income in there. This has made multiple-freebie grabbing much more difficult, but it's still sometimes possible.

What about students who don't need to borrow?

Even that rare student breed, those likely to be in credit, can still profit by opting for the account with 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 you for free, which is similar to a profitable technique that disciplined credit card holders can used called Stoozing. Doing this could add around £600 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 takes good budgeting and financial discipline.

Top Student Accounts 2008-09

There's a red hot battle between the high street banks and one way they compete is by publishing bigger overdraft limits, yet sneakily not allowing all students to have them. That makes comparing on paper only half the battle and sadly it's quite difficult to give any categoric answers beyond that. Most students have no credit history so scoring them is tough.

• Students from AND studying in England and Wales

  If you're English or Welsh and studying in England or Wales, the biggest 0% overdraft is from Halifax. It offers a whopping maximum interest-free overdraft of £3,000 every year, so the average limit over a three-year course is also £3,000.

  The problem is this is an upper limit, so you won't necessarily get the full amount immediately. This set up is similar to the way the bank operated in 2007/8, and feedback from then says it's likely you'll only receive £500 to start. However increases can be requested, but they depend on a credit score and aren't guaranteed but by the end of year one most should have access to the full amount.

  Annoyingly there's no way to find out in advance if you'll get all this money, but as the same's true for most other accounts, and it offers the biggest 0% overdraft which'll remain interest-free for a year after graduation, it's the safest bet.

• Students from OR studying in Scotland

  If you're Scottish or studying at a Scottish university the Royal Bank of Scotland offers a 0% overdraft of £2,750 which is only slightly smaller than Halifax's, but also gives you the choice of seriously hot freebies; either £100 free cash or its Travel Package, which includes a three-year 16-25 Railcard (which cuts many UK rail fares by a third) and one month's free bus travel in Edinburgh, Glasgow or Aberdeen. Plus, apply online and you'll also get a free webcam.

• A serious freebie worth considering

  The one alternative worth considering is NatWest. It offers a free five-year 16-25 Railcard worth £120 so if you're a regular train traveller, this is a boon as it cuts a third off many fares (see the Cheap Train Tickets article). The railcard will be renewed each year provided you’ve used the bank account within the previous three months.

  However, the pay off for this big freebie is a much lower 0% overdraft of £1,250 in year one, £1,400 in year two and £1,600 in year three.

  Thus this account is best for students who won't be playing the 'deficit banking' trick explained above, and aren't likely to be pushing the brink of a zero percent overdraft.

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Nine high-street banks offer student accounts, each with varying overdraft limits, incentives and term & conditions.

• Abbey, Barclays, Co-operative Bank
• Halifax/Bank of Scotland, HSBC, Lloyds TSB
• NatWest, Royal Bank of Scotland and Smile

2008/09 Student Account Details

Abbey, Barclays, Co-operative Bank

	Abbey	Barclays	Co-operative
Name	Student Current Account	Student Additions	Student Account
Eligibility Criteria (You must be at least 18 to get an overdraft)	Must be a permanent resident in the UK, in full time education studying a degree/degree equivalent or post graduate course	Must be a permanent resident in the UK, in full time education studying a degree/degree equivalent or post graduate course	Over 18 in full time education on a course that qualifies
Sign Up/Other Incentives (selected)	N/A	Six cinema tickets (12 if you take out a Barclaycard too) if you open the account by 31 Oct and deposit £500 (and make one transaction on the Barclaycard, if applicable) by 31 Dec	N/A
Maximum Interest Free Overdraft Limits
Year 1	£1,000	£1,000	£1,400
Year 2	£1,250	£1,250	£1,700
Year 3	£1,500	£1,500	£2,000
Year 4	£1,800	£1,750	£2,000
Year 5	£2,000	£2,000	£2,000
Interest Free Average (3 year course)	£1,250	£1,250	£1,700
Interest Free Average (5 year course)	£1,510	£1,500	£1,820
Are these interest free overdraft rates guaranteed or are they done on a case by case basis? If case by case what proportion of people get the maximum?	Yes	Case by case basis	At the bank's discretion
Agreed Overdrafts beyond the 0% limit	9.9%	8.9%	9.9%
Unauthorised overdraft rate & fees (ALWAYS AVOID – talk to the bank first)	28.7%	If you go past your overdraft, you'll be charged a ‘Personal Reserve’ fee of £22 every five working days, until crediting the account to clear the reserve. You’ll be advised of your personal reserve limit once an application is successful. Any payments debited from the personal reserve will be honoured. Payments beyond the personal reserve will be bounced, unless they fall into the category of a guaranteed transaction (e.g. a cheque payment guaranteed with a cheque card). Customers will pay £8 per item for a returned or guaranteed transaction, capped at five per day.	15.9%, unpaid items £30
What is the in-credit interest?	4% on balances up to £500, 0.1% on above that	0.1%	0%
Can accounts already open at other banks be transferred & will they get this year's rates?	Yes	Yes, providing they meet the bank's criteria. Interest free overdraft will be in line with year of study	Yes, the overdraft will be inline with year of course
Is there anything in your terms and conditions to stop them opening a student account with another bank too?	No, but the account must be used as the main account and have regular activity	No, but you must ensure that this is your main current account and it must be credited with any main source of funding	No
Is there anything else we should be aware of?	N/A	N/A	After graduation the account keeps its student account terms for one year and then the account will be migrated to a standard Co-operative current account

2008/09 Student Account Details

Halifax/Bank of Scotland, HSBC, Lloyds TSB

	HBOS	HSBC	Lloyds TSB
Name	Student Current Account	Student Service	Student Account
Eligibility Criteria (You must be at least 18 to get an overdraft)	Over 18 and in/about to enter a full time, three-year course. A university confirmation letter or UCAS check is needed.	Permanent UK residents on/about to start a full-time undergraduate (eligible) course that lasts for at least two years at a UK university or college of higher education. 17 year-olds can apply, although won’t receive credit facilities until their 18th birthday, if applicable.	Students must have applied through UCAS and have a UK university offer letter
Sign Up/Other Incentives (selected)	N/A	Two years’ worldwide travel insurance if £250 is credited before 31 Oct 2008. Trips must be taken between 1 March 2009 & 28 Feb 2011	Free NUS Extra card worth £10 Refer a friend scheme: up to £100 cash. £20 28 days after your account has been opened, then £20 per friend who also open a student account, up to £80. Offer ends 15 Sept 2008 and at least £200 must be credited to the accounts before 31 Oct 2008. Free YHA membership for a year worth £9.95. 35 free eMusic downloads if you’re new to eMusic
Maximum Interest Free Overdraft Limits
Year 1	£3,000	£1,000	£1,500 tiered in the first year: £500 for the first six months £1,000 in months seven to nine £1,500 after that
Year 2	£3,000	£1,250	£1,500
Year 3	£3,000	£1,500	£1,500
Year 4	£3,000	£1,750	£2,000
Year 5	£3,000	£2,000	£2,000
Interest Free Average (3 year course)	£3,000	£1,250	£1,500
Interest Free Average (5 year course)	£3,000	£1,500	£1,700
Are these interest free overdraft rates guaranteed or are they done on a case by case basis? If case by case what proportion of people get the maximum?	Account acceptance and overdraft limit determined on a case by case basis	All credit is subject to status	Assessed on a case by case basis. Successful applicants will have a £500 minimum overdraft. The number of applicants refused is negligible
Agreed Overdrafts beyond the 0% limit	7.2%	Additional borrowing over the interest-free limit at three per cent above Bank of England base rate	N/A
Unauthorised overdraft rate & fees (ALWAYS AVOID – talk to the bank first)	24.2% with a £28 fee per month. Paid item charge of £20 (max one per day), failed item charge £20 (max one per day)	Additional borrowing over the interest-free limit at three per cent above Bank of England base rate. Returned items (incl. cheques, Direct Debits, standing orders): Up to £10 = no charge Up to £20 = £10 per item £25 plus = £25 per item.	8.2% Students who exceed their planned overdraft limit won’t be charged a fee the first time it happens. Thereafter, they will pay a flat monthly fee of £15 and then a lower unplanned borrowing fee on a daily basis, irrespective of how many transactions they make that day. Being over the limit by less than £25 will cost £6 per day, from £25 to £100 will cost £15 per day and over £100 will be £20 per day.
What is the in-credit interest?	2.02%	6% on balances up to £1,000. 0.10% above this	0.1%
Can accounts already open at other banks be transferred & will they get this year's rates?	Yes. The interest free overdraft will be in line with the current year of study.	Yes, the rates will be based on the rates available at the time and the year of study the student is in	Yes
Is there anything in your terms and conditions to stop them opening a student account with another bank too?	No	Yes	Yes
Is there anything else we should be aware of?	The account remains interest free for one year after graduation	N/A	Lloyds TSB also offer an Islamic Student account which is designed to meet the requirements of Islamic law (Shariah)

2008/09 Student Account Details

NatWest, Royal Bank of Scotland and Smile

	NatWest	RBS	Smile
The Basics	Student Account	Student Royalties	Student Account
Eligibility Criteria (You must be at least 18 to get an overdraft)	Permanent UK residents on/about to start a full-time undergraduate (eligible) course that lasts for at least two years at a university or college of higher education	Starting your first full time higher education course in the UK for a duration of at least two years	In full time education on a qualifying course, depositing a student loan payment or at least £300
Sign Up/Other Incentives (selected)	Free five-year Young Person’s Railcard (renewed each year provided you have used your account in the previous 3 month period). £50 off mobile broadband. £100 off an Asus laptop. Free webcam if account is opened online.	Students from OR studying in Scotland: £100 cash or a three-year railcard worth £72, plus a month’s bus travel in Glasgow, Edinburgh or Aberdeen. Students from AND studying in England or Wales: £50 off mobile broadband from 3 & £100 off an Asus laptop. Everyone: Free webcam if account is opened online.	N/A
Maximum Interest Free Overdraft Limits
Year 1	£1,250	£2,750	£1,000
Year 2	£1,400	£2,750	£1,400
Year 3	£1,600	£2,750	£1,800
Year 4	£1,800	£2,750	£2,000
Year 5	£2,000	£2,750	£2,000
Interest Free Average (3 year course)	£1,420	£2,750	£1,400
Interest Free Average (5 year course)	£1,610	£2,750	£1,640
Are these interest free overdraft rates guaranteed or are they done on a case by case basis? If case by case what proportion of people get the maximum?	Assessed on a case by case basis	Assessed on a case by case basis	The overdraft is at the bank’s discretion
Agreed Overdrafts beyond the 0% limit	N/A	N/A	N/A
Unauthorised overdraft rate & fees (ALWAYS AVOID – talk to the bank first)	17.81% If you exceed your arranged overdraft facility or go overdrawn, you will be charged £38 for each unpaid item (eg. standing order, Direct Debit, cheque payments)	29.84%	15.9%
What is the in-credit interest?	0.1%	2.02%	2.27%
Can accounts already open at other banks be transferred & will they get this year's rates?	Yes, but they won’t be eligible for the free incentives	Yes, but they won’t be eligible for the free incentives	Yes, the overdraft will be in line with year of course
Is there anything in your terms and conditions to stop them opening a student account with another bank too?	No	No but it must be used as the main account	No
Anything else we should be aware of?	N/A	N/A	There is no graduate account. After graduation the customer will keep their student account terms for one year and then the account will be migrated to a standard smile current account

It's also worth remembering that next year even better accounts are possible so it's worth checking whether you should switch. All next year's top deals will be in the free weekly email.

While these 0% overdrafts are very useful, and should help you with cash-flow issues while you're a student, don't ever think of this money as part of your income, and there's a simple reason for this.

Once you graduate, after a year or so, your 0% overdraft jumps to high commercial rates, which cost large

Existing students should switch too!

The current offers by HBOS and RBS are massively better than most others, thus if you're a current student going into your second or third year, you may want to take advantage (though do confirm it'll at least match your current limit initially). Both providers will allow existing students to transfer their accounts over and get the same terms as others in their year of study, although unfortunatley those switching won't be eligible for RBS's £100 cash or travel package incentives.

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).