As customers, 18 year olds who are about to head off to college or university are about the best targets that banks can go for – and I don’t mean this in a bad way. Student bank accounts are some of the most generous on the market, offering attractive offers left right and centre in order to turn you, the customer, into loyal customers. For once, the offers generally are as good as they seem, but a bit of care and attention can land you with a bank account that you’ll be pleased to hold on to.
The following are a few areas to consider when choosing the best student bank account. Different accounts will offer these in varying degrees, so it’s good to think about what is most likely to be important to you and choose an account accordingly. Shop about: if the first deal you look at seems attractive, there’s no reason why the next one can’t be even better.
Interest Rate, or APR
The interest rate is one of the first things people look at when choosing a bank account, and rightly so. APR, or Annual Percentage Rate, is the percentage return you will get on your money if you leave it in the account for one year. An APR of 5 percent on savings of £1000 will give you an extra £50 by the end of the year.
Usually a current (or checking) account, as student accounts tend to be, do not offer any interest, and even sometimes charge for their services. Not so with a student account; many offer a good rate of interest that rivals many savings accounts.
I opened a student account with HSBC who offered me 6 percent interest on my first £1000. Unfortunately then the financial crisis happened and it fell back down again. It’s worth checking the small print: will the interest rate stay the same, or can the bank change it?
Another common feature of student accounts is an overdraft charging 0 percent interest. If inflation is positive (as it usually is), this means that you are actually earning money when you go overdrawn! A 5 percent rate of inflation when you are £1000 overdrawn is exactly the same as being given 5 percent APR on a positive balance.
Students, whose finances are inevitably tight, frequently rely on their overdrafts. In later life such a thing would be dangerous, as overdraft rates tend to run to 20 percent or more, but with an interest-free overdraft this is not a problem – just make sure you don’t stay in your overdraft when your studies finish!
There are a few other things you might want to consider before choosing your account too.
1. How good is the bank for travel? If you plan to do lots of travel during the holidays this is an important one to consider.
Firstly, what charges apply to using your card abroad? Generally banks charge a fee for withdrawals from cash machines, and some but not all charge for chip and PIN transactions as well. If they take a percentage cut of everything you spend, it all adds up fast.
Secondly, how easy is it to sort things out when you’re travelling and something goes wrong? When my card got blocked while I was travelling in India I didn’t have to spend a fortune on the phone to HSBC, I just walked to the nearest branch. Not many banks let you do that.
2. What happens when you finish your degree? Usually the main thing to consider here is how fast the bank will take away your interest free overdraft. If you are likely to be in debt upon leaving (and most people will be) it’s important to give yourself plenty of time to pay it off or you will have a real headache.
3. Charges. Most bank accounts have charges for various things, like exceeding your overdraft limit. Most can be avoided by being sensible and keeping on top of your finances, just make sure that there aren’t any that are there to sting you. This is a good question to ask if you go into the bank to talk about an account.
Student accounts also often come with offers of various freebies, ranging from cuddly toys to train passes. Personally I would argue that these accounts are best avoided – the rather patronising insinuation being that you’re more interested in the shiny present than what ‘APR’ means – but depending on your situation a free train pass might be a major financial saving.
Just make sure that the shiny toy doesn’t distract you from the more important elements of the bank account!
All in all, the main thing is to be careful. It is quite likely that you are going to be saddled with this bank account for a good few years and through some of the trickiest financial times of your life, so it’s pretty important to get it right. The good thing is, while you are a potential customer, particularly an 18 year old customer, they are going to treat you really well. If you’re unsure, always go and talk to them about the account.