Banks unveil student account deals: how do they stack up?
As the high earners of the future, banks and building societies are keen to win students’ custom so they try to entice them with perks such as interest-free overdraft periods or free or reduced rail and coach travel cards.
They also target students with plenty of freebies such as gift cards as they think undergraduates will stick with them and may be more inclined to take out a loan, mortgage or other product from them in the future.
Top student current accounts
The biggest benefit of a student account is the interest-free overdraft. The bank effectively loans students money without the need for them to pay back anything more than the sum borrowed.
For 2016/17, Lloyds, Natwest and Santander all offer a maximum of £2,000 interest-free overdraft, while Barclays and HSBC are the most generous in this area with up to a £3,000 free limit.
Andrew Hagger of MoneyComms cautions that students are not guaranteed the interest-free maximum overdraft with any of the banks. They have to apply for the overdraft.
However, he says “it’s a sobering thought that the extra £1,000 interest free from HSBC or Barclays would end up costing you £154 per year with Lloyds Bank – a difference of more than £460 during a three-year stint at university”.
With interest-free accounts, students still need to be disciplined as authorised and unauthorised charges can soon add up.
For example, authorised overdraft fees at the Halifax stand at 0.58% a month (7.2% EAR) for amounts over £3,000. For an unauthorised overdraft, it charges 1.82% a month (24.2% EAR) and a £28 monthly unplanned overdraft fee.
And while freebies may lure people in, it’s important the account is still suitable.
Hagger says the only freebie that may be worth a closer look at is the free four-year 16-25 railcard from Santander (worth over £70) which could save plenty on train fares back and forth between home and university.
Another consideration is in-credit interest. Among the best are Santander offering tiered interest of between 1% and 3% (between £100 and £2,000) and TSB giving 5% on balances up to £500.
Other accounts offer either no credit interest or no freebies.
Money worries can easily end up distracting students from their studies, so keeping tabs on their bank balance on a regular basis will ensure they study effectively and have one less thing to worry about.
Click the table below to see the full comparison of student bank accounts: