Top Student Accounts

Big banks love enticing new students with offers of glitzy freebies and 0% overdrafts, then rely upon their profitable custom for decades after graduation. Yet act smart, and students - both this year's freshers and seasoned academics - can switch to the best and gain £100s.

George hit the books on his first day

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

What is a student account?

Put simply, it's a day-to-day current account specifically for students in higher education, with advantageous rates and functions. 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 dettled into student digs, knee-deep in Pot Noodles, but now most banks accept anyone with a UCAS offer letter (conditional or unconditional). So, you can 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!

Sadly, it's far from certain that the one on offer will be the top account on the market; generally it'll be the one who pays the uni the most money.

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, to compare, you should purely examine what's on offer.

Go for the biggest overdraft!

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

Go for the bank 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. This year's average student is likely to graduate owing more than £20,000, so it's vital to find the cheapest way to borrow.

The solution is to go for the lowest interest rate available, as the lower the rate is, the less the debt costs you (read a full Interest Rates Beginners' Guide).

The big draw of student accounts is that they let you borrow interest free, PROVIDED you stay within the limits. This is as good as it gets; a much bigger gift than any freebie. Therefore the question that pays is, 'which bank gives the most 0% borrowing, for the longest period?' (find out in the Best Buys).

Before you grab one though, there are a couple of stark warnings about overdrafts...

• NEVER exceed 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 - you will! 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 form. 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 anomalies, 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 huge 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 business 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, savvy students can take advantage. Choose the right student account and max out your gain from it, but don't let their short term bribe and free overdraft buy you for life. Grab what's on offer, then after uni, ditch and switch to the Top Graduate Account and eventually the Top Bank Account.

Freebie grabbing often prompts the question, 'can I open more than one student account?'. It used to be fine, but banks' criteria are now tighter, usually requiring you to deposit your student loan or main income in there. So, multiple-freebie grabbing is now much more difficult, but still sometimes possible.

What about students who don't need to borrow?

That rare student breed - those likely to be in credit - can PROFIT by opting for the account with the biggest 0% overdraft, then using a budgeting technique I call 'deficit banking'.

The premise is to keep as big a negative balance within your 0% limit as possible, then put this money into the top paying Instant Access Savings Account (and interest earned will be tax-free for most students). When your overdraft limit drops, move the necessary cash back to your current account (use the Tart Alert to remind you).

This means interest is earned on money the bank lends you for free, Done right, this can add around £300 to a student's coffers over the length of a course, and similar tricks are possible with student loans (see the Student Funding article).

However, this isn't an excuse for spending or borrowing more. If you're not financially disciplined, DON'T TRY IT.

Top Student Accounts 2009-10

For years, this has been a red hot head-to-head battle between the high street banks; yet they often compete by publishing bigger overdraft limits, then sneakily not allowing all students to have them. This means comparing overdraft sizes is only half the battle.

Banks claim they grant overdraft limits based on credit history, however most students will have no credit history at all! Sadly it's quite difficult to give any definitive answers, so these are the biggest overdrafts, and any feedback we have on them.

• Halifax and Bank of Scotland.
  Biggest limits, but no certainty you will get them.

  The biggest advertised 0% overdraft is from Halifax and Bank of Scotland. It shouts loudly about a whopping maximum interest-free overdraft of up to £3,000 every year, so the average limit over a three-year course is also £3,000.

  The big problem is this is an upper limit, and previous years have shown it's unlikely you'll get the full amount immediately, if at all. Feedback from MoneySavers suggests just £500 to start is likely, then around £1,750 by the end of year one (see poll results for 2008/09).
  
  To get the full £3,000 you must request it, and even then it's not guaranteed; it depends on a credit score. Annoyingly, you can't find out in advance if you'll get the whole lot, though the same's true with other banks. However, it is the biggest 0% overdraft around, and handily remains interest-free for a year after graduation.

  If you apply for this, please let us know the size of the overdraft you get: Halifax Feedback.

  Quick Stats. 0% Overdraft: All years Up to £3,000 (not guaranteed) Authorised O/d rate: 7.2% EAR. Unauthorised O/d rate: 24.2% EAR (Plus other charges). In-credit interest: 0.1% AER

• Barclays
  0% Overdraft of up to £2,000, no previous bad feedback.

  The next biggest overdraft is with Barclays Student Additions; limits of up to £2,000 from the first year onwards, though again it's not guaranteed. It's based on basic credit check, but crucially students need to request the limit they want, so if you don't ask, you won't get.
  
  Barclays hasn't been an MSE top pick in recent years, so we're low on feedback as to what overdraft limits it gives in practice. If you get one of these, please let us know the size of overdraft you get: Barclays Feedback.
  
  Usefully, this gives a cheap 8.9% APR extra borrowing facility of up to £1,000 on top of the interest-free limit. Again you must request it, but this is nearly as cheap as the top personal loans, so IF you need it (do a budget first), it's a great option. Never go further overdrawn though; unauthorised borrowing costs £22 for every five days.
  
  Quick Stats. 0% Overdraft: All years Up to £2,000 (not guaranteed) Authorised O/d rate: 8.9% EAR. Unauthorised O/d rate: £22 for every five days overdrawn. In-credit interest: 0.1% AER
  
  
• Royal Bank of Scotland.
  Big overdraft and £65 railcard if you're 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 up to £2,750 which is only slightly smaller than Halifax's, but also gives a three-year 16-25 Railcard worth £65; this cuts many UK rail fares by a third, (see the Cheap Train Tickets article). Plus, apply online and you'll also get a free 4GB USB stick.
  
  Again, the overdraft limits are on an 'up to' basis, and it's likely you'll have to actively ask for an increase, As standard, you should get £1,250 by the end of your first year if you don't ask for more. Also, quite rarely for a student account, it pays OK in-credit interest of 1.02% AER.
  
  If you apply for this, please let us know the size of the overdraft you get: RBS Feedback.
  

  Quick Stats. 0% Overdraft: All years Up to £2,750 (not guaranteed) Authorised O/d rate: N/A. Unauthorised O/d rate: 29.84% EAR (Plus other charges). In-credit interest: 1.02% AER

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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

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.

A year or so after you graduate, your 0% overdraft jumps to expensive high street rates

So, once this happens, it's crucial you switch away from your student account. The big banks also offer Graduate Accounts, which give 0% overdrafts of decreasing sizes for a few years following graduation, and switching is simple.

Existing students should switch too!

The current 0% overdraft deals of £2,000 and more 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).

Existing students can 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 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).