Thinking Money | Free Financial Advice and Tips

Choosing a student account

Posted on 12. Sep, 2011 in General News, Saving money

Student accounts can be very rewarding, so they are a must have for all University goers.

Although banks do initially lose money on student accounts, they act as a loss leader because they work to the fact that many students will continue to use the bank for years to come, generating profits through other products, from savings accounts to mortgages.

Student accounts are designed specifically with students in mind, allowing money to be paid in and withdrawn, as well as offering a number of other benefits including 0% overdrafts and discounts on products and services.

Below are some on the main things to keep in mind when searching for the best student account.

ñ  Look around for the best interest free overdraft

Most students will find the overdraft facility is the most useful tool they have, so it can pay off to find the best deal. Look into how the overdrafts are given, as some accounts advertise big limits but in the small-print you will see that these can’t be reached until the second or third year of study.

While many banks try to attract students with cash incentives or discounts, the most valuable feature of all is the 0% overdraft (unless you don’t need it). This can also be true after you have graduated, so look into the graduate accounts that will follow.

ñ  Always stay within your overdraft

It very important to make sure you never exceed your 0% limit. This isn’t just a rule for student accounts, it’s something you need to stick to for life.

Doing so is likely to lead to penalty charges, so if you’re desperate, go and speak to your bank as they may agree to increase your limit.

If you do find you have accidentally gone over your overdraft and you are charged, call your bank to explain – they may refund the charges if you are back within your limit and don’t make a habit of it. Something else to keep in mind is that different banks charge different amounts, so you could be charged up to £30 per transaction upon exceeding your limit.

ñ  Building up your credit score

Any products that allow you to spend money that you don’t already have, including bank accounts with overdrafts, are used to build up a picture of your financial activity which will affect your credit score. The data is stored, so if you stay within your limits you will build up a good credit rating.

However, exceeding your overdraft will have a negative affect on your credit score.

Your credit score is used by lenders to make an informed decision on how much of a risk you pose to them. Prove that you can be trusted with credit and you are more likely to be accepted on application to the top deals on loans, mortgages and credit cards.

This rule also applies to student credit cards, so be sure to stay within your credit limits.

ñ  Don’t choose your provider based on convenience

Just because a bank has a branch near to your campus, or it is the bank that you have used in the past, it doesn’t make it a reason to open a student account with them.

Most cash points offer free withdrawals these days and most banks come with online banking facilities, so this should mean you won’t need to visit a branch very often. Therefore, you should focus your reasoning purely on what the account offers.

ñ  Switch to a graduate account after finishing your studies

Once you have graduated, you will still be eligible for preferential terms, including interest free overdrafts to help you clear your debts without having to pay interest for the privilege. In some cases these accounts are free, but those that do charge often come with other benefits such as mobile phone insurance and breakdown cover, which may be less than you currently pay for these services.