Have you ever left picking up your student account, to the last minute? Panic not, here is your ultimate guide to getting the best deal.
Yes, banks have been downgrading all the freebies you receive on student accounts, but what matters to you is the cost and size of your overdraft. But avoid borrowing too much, here we’ll explain why.
If you’re one of the many who are going to start university soon, you may expect to see some of the banks crowding up those “fresher fairs”, simply jostling around for attention.
Hold on! But, why do the banks try to court broke students?
Well, they’ve specialised accounts specifically intended to appeal to youngsters and draw their attention at the earliest opportunity. Even after they get older and start making money, many banks will bother them to switch accounts. Put simply, they are money-spinning customers for life.
It may not make any sense, bearing in mind how much easier it’s now to compare accounts and switch if required. But, most of them would be too busy or lethargic to do so, great news for banks, who desperately try to get new norms and keep it.
So in the recent past, many banks have been keen on offering trendy things to kids to help entice them, like cinema tickets, free travel insurance (for when you wish to widen your horizons), etc.
But, are we seeing the last of these freebies?
Most of the banks are seriously downgrading the additionals offered with student accounts. For instance, some banks now only offer discounts on car breakdown, some no longer offer commission free travellers’ currency and check. On the other, some of them have pulled out the best and actually valuable freebies, a railcard that lasts for 5 years, etc.
Without any doubt, there’s a stricter mood amongst banks these days, suffering as they’re from wobbly share prices and declining profits. Another possible reason for a cutback in the freebies is the massive number of students applying to university. Put simply, banks have more captive audiences and do not need to work hard to attract customers.
But, maybe this development isn’t a bad thing, as it’ll majorly focus students' minds on what actually matters, that is securing an interest free overdraft and sticking to it, from day one.
An interest free overdraft would permit you to borrow without paying anything extra. Banks could appear to be offering enormous overdrafts, maybe up to £3000, but students would be credit scored by banks, only when they first open their account and might be offered a lower amount in the first place.
Several researches discovered that banks simply say that they offer overdrafts “up to £3000”, but most of the customers find themselves being offered less in the first year instead.
Certain banks would then operate on a tiered basis, thereby increasing the limit every year, should you request it and prove that you can borrow sensibly, isn’t that fair enough?
After all, majority of students would need to borrow to get by, as going to the university is becoming an even more expensive affair. So, it’s imperative to understand what the overdraft limits are, and accordingly negotiate a higher threshold if required.
If you foresee going over the interest free overdraft, you might be approved a further “planned” or “authorised” overdraft, based on your bank. This will be approved well in advance with the bank, and you’ll be subject to interest and perhaps a fee. But, do remember that certain banks won’t offer this further sanctioned overdraft.
For students who cannot have an “authorised” overdraft or who even surpass it, “unauthorised” overdrafts would kick in, with enormous monthly fees and interest rates. But, should you really have to take this last step, at least one or two banks might not charge as much on the “unauthorised” borrowing as others.
However, your overdraft would be there only as a last resort, and not at all as an excuse to spend. Apart from the risk of incurring those additional expenses, overdrafts for grownups are seldom as generous as they are for students and graduates.
So, you ought to master the art of budgeting in the first year and make sure you can keep a clean credit score; this way you will not go wrong and it’ll make the shift to adult banking easier.
Do not wait until the fresher’s fair gets the current account sorted. You will only receive information from those banks that have bargained for a spot at the fair. Also, you cannot possibly come up with the best decision that way. So, get your current account in order before the campus life takes over.
Here are some of the best student accounts that you can choose from:
Long Distance Study/Best All Rounder
If you’re able to make a deposit of around £500 per term, then you can opt for 1|2|3 Santander Student Account. This comes with a Young Person’s 16-25 Railcard for 4 years, which offers you 1/3 off rail travel, and also pays 3% on balance from £300, up to a maximum of £2,000.
This type of student account also offers you an interest-free and fee-free “arranged” overdraft, up to £1,500 in years 1 to 3, and up to £2,000 if you’d stay for 4-5 years. But, unauthorised fees would be set at £5 per day, and up to £50 per month.
The HSBC Student Account offers an interest-free overdraft of £500 to £1,000, when you open your account. If you request, the amount can be raised up to £2,000 in the second year, and up to £3,000 in the third year. This overdraft comes with no fees; however, your account will be locked until your balance returns to an agreed limit.
If you opt for this account, you’ll also receive a £60 Amazon Gift Card plus a year of free Amazon Prime Student membership. Likewise, even Nationwide FlexStudent offers the same policy, but they don’t offer freebies and simply provide interest-free overdraft, going from £1,000 up to £3,000, over a period of 3 years.
The Ethical Choice
The Co-operative Student Account is considered as the most ethical option. This is merely because it offers a free overdraft limit of £1,400 in the first year, which can go up to £1,700 in the second year, and up to £2,000 in the third.
In order to arrange your overdraft you will have to pay £300 or even more, to activate the account. But, once you finish your degree, for the first year, your overdraft will be interest free and you won’t have to pay monthly account fees.
Tips to Pick Up One of the Best Bank Accounts
Do read on for some useful tips, which could turn out to be helpful whilst you pick your bank account.
The Issue with Interest
If you end up being one of those excellent students who can manage their finances, then you’ll be a bit dissatisfied by the interest rate offered on most of the student loans.
If your bank is paying you a small amount of interest when you are in credit, there is nothing that could stop you from transferring your balance to an instantaneous access savings account, either with the bank or another one, whichever is the best for you.
Try to Avoid Student Credit Cards
A bank will always put in its best efforts to persuade you to get a credit card from them, but it’d be better that you stay away. Generally, the interest rate is between 15% and 40%, with a minimum monthly repayment that ranges between1% to 5% of the card balance, even before you’ll be charged.
All these additional charges and interest won’t be worth it. However, if you’ve already taken a credit card from your bank, then it’s imperative to check for PPI. Also, if you find out that you’ve been mis-sold one, then it’s time to Reclaim PPI to get your money back.
Hold onto any Approval Letter or Proof that You’ve got into the University
There have been many students who have faced many hassles whilst trying to open a student account, as they threw away or lost important pieces of information. Every bank will ask for that important conditional or confirmation letter from your university.
So, it is of utmost importance that you keep all the essential documents safe with you, to avoid such issues.
Don’t be Afraid to Move to another Account When the Graduate Overdraft is Up
If you ever find you ever find yourself borrowing less money or earning more income, there might be several accounts out there with better deals for you.
On the other hand, if you still find yourself borrowing money, then your bank might become extremely draconian with those interest charges on your overdraft, and those peaceful days of interest-free borrowing will come to an end soon.