Donít get caught out by student account gimmicks

There are just weeks to go before A level results are out, when school-leavers will discover if they have made the grades to get to university.

For those that do secure a place, the financial lessons need to start as soon as possible. As well as finding out about student loans to help cover the cost of tuition fees and accommodation, choosing the right student current account is vital.

Banks offer plenty of tempting incentives to entice students to join, but it’s important not to get side-tracked by these and instead to focus on the more important things, such as the interest-free overdraft.

There are 11 providers which offer student banking, all of which provide interest-free overdrafts, but terms can vary considerably, so always read the small print before you sign up. The most generous interest-free overdraft by far is from Halifax, which offers up to £3,000 for up to five years while you are a student, and then for a further year once you have graduated.

In contrast, Abbey, Barclays, HSBC and Smile all only provide an interest-free overdraft of up to £1,000 in year one. Barclays, Abbey and HSBC offer up to £1,500 in year three, rising to £2,000, £1,800 and £2,000 respectively in year five. Smile offers up to £1,400 in year three, rising to £1,800 in year four. NatWest offers up to £1,250 in year one, rising to £1,600 in year three and up to £2,000 in year five.

Remember, however, that with all the student accounts, you may not automatically be offered the maximum interest free overdraft advertised. The amount you will be allowed to borrow will depend on your credit history, and if this isn’t up to scratch, you may be offered a lower limit.

If you are lucky enough to not go into the red while you are at university, then the in-credit interest rate will be more important than the overdraft rates. Most student accounts pay just 0.1pc gross interest a year, but both Halifax and Royal Bank of Scotland pay 2pc gross interest. Smile, however, pays the highest rate of in-credit interest at 3pc gross a year,

Once you have decided how much of an overdraft you think you will be likely to need, only then should you look at the incentives. Some, such as discounts on compact discs, are likely to have little financial impact, but NatWest’s offer of a free five year Young Person’s Railcard could make a real difference to your pocket if your home is a long way from university and you travel back there regularly.

You may well be offered a student credit card when you open your account, but try and resist the temptation to take this out, as every pound you borrow while you are a student will need to be repaid and will be racking up interest until you are earning. Similarly, don’t blow your student loan at once – work out how much it will give you to spend each month and set a strict budget so that you don’t exceed this amount.

By Melanie Wright

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