Top Tips for Choosing a Student Account

We've put together some top tips for finding the best bank account for students.

As young people grow up, there is always a long list of things to prepare for, including choosing the right student bank account. It's a good idea to have a chat about managing money with them before they start college or university, including the challenges of budgeting and how to manage bank and credit card accounts.

What is a Student Account?

Student bank accounts are set up specifically for those in higher education, offering benefits such as interest-free overdrafts.

Applying for a Student Bank Account

In order to open a student account, you'll need a UCAS confirmation letter with an unconditional offer or, if your offer's conditional, A-level results that meet that condition, or a letter from the university with confirmation of your place.

New applicants for a bank account with an overdraft will be credit checked by the bank to decide if they want them as a customer. It'll be based on previous financial data that shows how the applicant is likely to manage a student bank account. As a student, there's likely to be very little data, which makes credit checking tough and can sometimes leave students rejected. Find out more about building credit history for students.

Budgeting

Start by understanding your income - when you're working the idea is that you shouldn't spend more than you earn, but when it comes to those going to university, you need to look at it slightly differently:

Add up your student loan + employment earnings + money from family + any grants/sponsorship money = your income.

For those going to university or college, funding is key. Make sure you're aware of the loans and grants available to you and plan accordingly. See the Money Saving Expert's student loans guide for more on fees and funding.

Overdrafts

While overdrafts are very useful and can really help out with cash-flow issues for students, it's important that they aren't seen as part of your child's income. Overdrafts are loans, even though they might be interest-free as a student, they won't always be and will need to be repaid at some point. If your child can keep their living costs low and budget effectively, they may not need to use their entire overdraft limit, meaning there's less to pay back eventually.

Overdrafts are only available to those who are 18 and over, UK law doesn't allow banks to lend to anyone younger. Some banks do allow you to open an account at 17, which is particularly useful to Scottish students who are likely to finish Highers and start university at 17. If that's the case, they won't offer an overdraft as part of the account until they turn 18.

Things to be wary of with overdrafts:

• Some offer 'guaranteed' amounts and others 'up to' amounts - make sure you compare like for like.
• While you might want to aim for the biggest and longest 0% overdraft, don't always apply for the maximum overdraft - if the temptation is there, there's the possibility of getting caught up in a spending spiral. It's better to budget and use it as a buffer - remember, it will need to be paid back!
• Never go over the overdraft limit. It's important to stress this and explain to them that charges will occur if they do.
• Some banks offer the interest-free overdraft limit in tiered stages, which increase with each year of study, meaning you could end up with a bigger overdraft limit after your first year - it's important to factor this into your decision-making process. For example, up to £1,000 in your first year, £2,000 in year two, and £3,000 in year three. This can encourage students not to use all of the interest-free overdraft in the first year and give some breathing space in years two and three, but they will need to apply at the start of each year for an extension to their overdraft, even on guaranteed limits - they're not applied automatically.

Freebies

Don't be swayed by the freebies offered as part of some student bank account packages, including free travel cards and Amazon vouchers. Though very useful, the most important aspect for most students is the interest-free overdraft limit. If managed well it's the cheapest loan they'll ever be offered.

The Final Word

Your advice can help set up your child to be independent and manage their finances on their own. It will help to encourage behaviour that will start them off on a sure footing financially and give them the knowledge to move forward through university on an even financial keel to the next stage of their life.

What next?

• Comparison Sites - Comparison sites such as Money Supermarket can give a clear overview of the market and narrow down your search.
• Budgeting - UCAS has advice on managing money and student budgeting tips.
• Research - High street banks are always competing by offering different incentives. Shop around and consider what it is you need. Money-Saving Expert has some useful advice on student account need-to-knows.

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