When it comes to choosing a student bank account, there are a range of freebies and perks on offer this year, from interest-free overdrafts and cashback to railcards and even a subscription to a meditation app. Opening a specialist student account makes sense if you’re starting university, as you’ll benefit from a 0% overdraft to make budgeting easier, along with some additional freebies.
As the autumn term approaches, banks commonly introduce extra incentives to attract students to their accounts. This summer, Lloyds Bank and Halifax launched a £100 cash offer for students who open an account and deposit at least £500 by October 31. Nationwide’s FlexStudent also relaunched with a £100 cashback offer for a £500 deposit by December 15.
In addition to these offers, HSBC, NatWest, and Royal Bank of Scotland (RBS) are already offering £100 cash incentives. Some banks are providing cashback of up to 15% for shopping with certain retailers. Santander is even giving away a four-year 16-25 railcard worth £100, which is useful for train travel.
Below, we reveal the top student accounts on the market in collaboration with Defaqto, an analyst firm.
How do student accounts work?
A student bank account functions similarly to a regular current account, but with features specifically tailored to higher education students, such as an interest-free overdraft that lasts for the duration of your degree.
It’s important to note that when you finish your higher education, your account will usually convert to a graduate or standard bank account. This means losing the student overdraft facility, and you’ll have to either pay off what you’ve borrowed or face paying interest. Your bank will inform you well in advance of this change.
How to open a student bank account
Depending on the provider you choose, you may be able to complete the account opening process entirely online.
Each bank will need to verify your identity before opening the account, so you must provide copies or photos of documents like your passport, driving licence, or birth certificate.
In addition, you’ll need proof of enrollment in further education, which can be demonstrated with your UCAS code and either confirmation of an unconditional offer, a letter from your university confirming your place, or proof of A-level results meeting the requirements of a conditional offer.
The rules may vary between banks, but generally, you can open a student bank account a couple of months before your course begins.
The best student bank accounts for 2023
Getting a student account can be an exciting time, especially if you haven’t had much experience managing your own money before.
The best choice of account will depend on your preferences, so consider whether a bank has a branch in your university town if you want to visit for any queries. You might find a student account perk that particularly suits you, such as a student railcard, which can save you a significant amount of money if you’re moving far from home.
Weigh the pros and cons of each option as we highlight some of this year’s best features.
The best rates
It’s rare for a student current account to pay interest on the account balance, possibly because many students often spend much of their time in their overdraft. However, if you’re unlikely to go into negative numbers, TSB is your best bet, paying a generous rate of 5% on balances up to £500. Lloyds Bank pays 2% on balances up to £5,000, and Halifax offers 0.5% on any account balance.
The best overdraft limits
For the most generous interest-free overdrafts, NatWest and RBS offer up to £3,250 in the third year of study (applications open on October 2, 2023). In the first two years, they both offer £2,000, limited to £500 in the first term of the first year. HSBC and Nationwide Building Society offer up to £3,000 in the third year, with both providing up to £1,000 in the first year and up to £2,000 in the second year.
A 0% overdraft is particularly useful for students who may have expenses to pay, such as rent, before receiving any student loans or grants. However, it’s important to avoid exceeding the overdraft limit, as fees and interest of up to 40% may apply.
Some banks offer guaranteed overdrafts, while others provide “up to” overdrafts that depend on your credit record. The HSBC student account offers a guaranteed £1,000 interest-free overdraft in the first year, but higher limits are not guaranteed in subsequent years.
Banking expert Katie Brain from Defaqto advises, “Most students need access to an arranged overdraft to help with their living expenses. It’s important to remember that this is a debt that needs to be paid back, so use it sparingly. Some providers also require a minimum amount to be credited to the account each term to qualify for an overdraft or an extended limit.”
Nationwide and Santander both require customers to deposit at least £500 each term.
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