For most, going to university is the first big step in the journey through adult life. But with it comes a raft of responsibilities. That includes managing your money, not just from week to week but in the decisions you make which could endure for years to come. Unless you're very lucky, you'll probably need an overdraft to keep you in printer credit and Pot Noodles if money gets tight for a while.
Student current accounts offer interest free overdrafts, and not just during your time studying either – you usually get at least a year's grace period after you finish before you have to start paying interest to help you find your feet. They sometimes include things like cheaper fees when the overdraft limit is exceeded, discounts on other bank products like contents and travel insurance, and free gifts. Other than that, they run just like a normal current account does.
It's a big market – the banks compete to get you to sign up with them as even though they are offering you interest free money now, you could end up being a customer for life – and that potentially means loans, credit cards, mortgages, investments and a plethora of different insurance products. In the meantime, a badly run student current account can make the banks money too, and hit you hard in the pocket at a time when you could do with it the least. It's vital therefore that you choose the right one.
Think about the big picture
Your overdraft might have to last you the full time of your study and possibly beyond if you don't find a job straight away when you finish. Therefore, it might benefit you to find a student account which ups the level of overdraft at yearly intervals, helping you to manage your money. If you have access to the whole lot in your first year and you spend it all don't expect the bank to up your limit beyond its maximum.
To plan your money properly you’ll need to know exactly how much overdraft you will get. Some accounts guarantee what your limit will be but some are advertised only as ‘up to’ a maximum level. Make sure you know what you will definitely get and what the criteria will be for getting to the next bracket.
Look at what happens after you finish
The banks will give you a certain length of time after you finish your studies while your interest rate remains at zero. This could be as little as a few months or as much as three years. At the point that your course ends the banks usually turn your account from a student one to a graduate one.
Just as some of the banks release the overdraft facility in stages, some allow you to pay it off by the same method. They decrease your loan to a certain level at yearly intervals and as long as your account stays above that level you won't pay interest.
After the agreed term of the account ends, though, the bank isn't obliged to give you any overdraft at all, interest charging or not. This means that if you are left with £1000 in your account at the end of the five year agreed length of the account the bank can demand its money back overnight and take legal action against you if it sees fit to.
It is possible to open a graduate account after you finish without having had a student account while you were studying and you can switch your student account at one bank to a graduate account at another to take advantage of longer interest free overdraft periods. To do this you’ll generally need proof that you finished and passed the course and have the relevant dates officially documented.
Beware of the freebies
Some of the things banks give away with their student accounts are useful, for sure. Things like national rail cards which save you a third on all of your UK rail travel, MP3 players, multi-trip travel insurance, car breakdown cover and the like could all come in very handy and even save you a few quid. But these things are all available without the account fairly inexpensively. The free gift should never be your primary reason for choosing a certain account. You'll end up paying a lot more than the value of your gift in interest rates and fees if you repeatedly break the terms of the account because your limit isn't high enough. And you'll be kicking yourself if that long lost MP3 player is the reason that the banks are threatening court action because you can’t conjure a couple of thousand pounds. If there's absolutely nothing to choose between the two accounts, go for the best free sweetener. If one account is better than another elsewhere, don't let the present cloud your judgement.
The questions you need to ask:
- What will the interest free overdraft limit be and how does it increase during my time at university?
- How long will the interest free period last for when I finish my studies?
- What rate of interest will I have to pay when it does start?
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What will happen if I go over my overdraft level?
Is the overdraft limit advertised guaranteed? - Will the money be released to me all in one go or in stages?
- How can I access my money?
- And – only after you've answered all of the above – what will they give me for free?
What you'll need to open a student current account:
- Accepted identification, usually two forms, one to prove your name and one to prove your address. One usually has to be photographic. Standard identification documents accepted include passports, driving licenses, utility bills, doctor's certificates, and statements from other banks or accounts.
- A letter from your college or university, or from UCAS, which certifies your place on a course and the start and end dates of your term of study.
- Be at least 18 years of age.
- To not already have a student current account at any bank – they'll run a credit check when you apply and will find out if you have.
With student and graduate current accounts, like most financial products, you are usually at liberty to switch from one bank to another to take advantage of better offers as they arise, provided you can pay off any overdraft you have used, be that through the overdraft facility on the new account or any other means. Check at regular intervals what’s on the market.
Click here to compare current accounts from the UK's leading providers.
Author: KYM Editor
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