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Ask Justin

Ask Justin

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Which student account?

Saving | Current Accounts Helpful? 1

Asked by spud124, submitted 23 January 2010.

Open Quote I tried searching your site for student accounts but was unsuccessful, can you please advise accordingly?End Quote

Answered by Justin on 26 January 2010

Banks tend to be reasonably generous to students (at least by their usual standards) in the hope that giving away some freebies and free/cheap borrowing for a few years will gain them a profitable customer for life. Nevertheless, overstep your agreed overdraft and you’ll find that steep bank charges are alive and well, even for students.

If you think your account will fall into overdraft then it’s vital you look at how large an interest-free overdraft a bank will give you and how much they’ll charge if you exceed this, both authorised (i.e. agreed in advance) and unauthorised. You’ll usually need to apply for an overdraft beyond a nominal limit, as the bank will want to gauge the likelihood you’ll repay it at some point.

Also check how long after graduating you’ll have to repay the overdraft before they charge interest. Some banks will switch you over to a graduate account straight away, usually hiking their charges and reducing the free overdraft limit in the process.

While the freebies, which range from £50 cash to a free rail card or flight, might appeal, their value could become insignificant versus future charges if you’re not careful. So never choose an account based on this alone.

So which accounts are the ‘best buys’?

If borrowing is your main priority then Halifax offers the highest potential free overdraft, up to £3,000. This remains free for up to a year after you graduate. If you need a higher overdraft and Halifax agrees then you’ll be charged 7.2% EAR on the whole amount, but go overdrawn without getting the ok first (i.e. unauthorised) and you’ll be charged a whopping 24.2% EAR, plus a monthly fee of £28 AND £20 each day you try to spend above your authorised overdraft limit. The freebies, AA and card insurance discounts are worthless.

Ulster Bank has lower borrowing limits, but fairer charges on unauthorised overdrafts. It offers free arranged overdrafts of between £1,250 and £2,000 depending on your year of study. Overstep this without permission and you’ll pay 12.68% EAR but, crucially, no monthly fees – although you could still pay £15 each day you try to spend when above your authorised overdraft limit. You can keep the account for up to a year after graduation. No freebies worth mentioning.

Smile is also worth a look. Its free overdraft ranges from £1,000 to £2,000 depending on your year of study. Authorised overdrafts above this are charged at 9.9% EAR and unauthorised at 15.9% EAR. There’s no monthly unauthorised overdraft fee, but you’ll pay £30 every time Smile declines a payment you try to make, capped at £150 per quarter. The charge is waived for up to six consecutive days provided you haven’t incurred it within the previous 366 days. You can keep the account for up to four years after opening. No freebies.

As for freebies, Santander is probably the most generous. It’ll pay you £50 to open an account, but charges 28.7% EAR plus £25 per month on unauthorised overdrafts.

The best advice I can give you is that whichever account you choose, never go above your overdraft limit without first agreeing this with the bank. Stray into an unauthorised overdraft and the costs will mount up in no time.

If you end up having some spare cash, consider opening a high interest savings account (or cash ISA if you’re a taxpayer) and transfer money over to your student current account when needed.

You might also find the information on student loans on our borrowing page helpful, along with our Student Loan Repayment and Overdraft Interest calculators.

Enjoy your student days while they last!

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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