Student life presents a unique learning curve for young individuals as they embark on a new journey and strive to make their money stretch. In a time of financial crisis, this learning curve becomes even steeper. According to a survey conducted by personal finance website Save the Student, 82% of students express concern about making ends meet, and one in 10 have had to resort to using food banks.
Selecting the right student bank account won’t miraculously solve all your financial worries, but it can provide a safety net when your balance dips into the negative, and perhaps even offer some useful perks. The most significant distinction between a student bank account and a standard current account is the overdraft feature, as explained by Tom Allingham, spokesperson for Save the Student. Unlike a regular account where you’re charged interest for using an overdraft, a student bank account provides an interest-free allowance to act as a buffer in case your balance drops below zero. Most student accounts come with an interest-free overdraft of at least £1,000, although the maximum amount may not be available until your second or third year, and you may need to apply for higher limits in order to reach the cap.
If you’re likely to need credit, which is the case for most students, this feature is extremely useful, if not essential. Kara Gammell, a personal finance expert at MoneySuperMarket, advises students to seek out the highest possible overdraft amount on offer. It allows for greater flexibility when managing your finances, enabling you to go into the negatives without experiencing financial penalties or resorting to costlier forms of debt like loans, credit cards, or standard overdrafts. However, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, notes that it’s not simply a matter of finding the highest overdraft. Different banks provide overdrafts in varying ways and with different limits, so it’s important to identify what is most important to you and find an account that meets your needs.
For example, HSBC and Nationwide offer the largest total interest-free overdrafts in the third year, up to £3,000, while NatWest/Royal Bank of Scotland offers up to £2,000 in the first year. However, it’s crucial to note that the advertised headline overdraft limit may not be the amount you can access upon application. You’ll undergo a credit check, and the amount you receive will depend on your credit record. Students naturally have limited credit history, so it’s even more vital to check this beforehand. Overdraft limits may not be fixed either. Some accounts provide an interest-free overdraft from the start, and some offer higher limits in subsequent years. Other banks advertise overdraft levels as “at least,” guaranteeing that specific amount, but some individuals may receive more. It’s crucial to monitor your balance and avoid exceeding your agreed limit, as obtaining a credit increase is not guaranteed. Approval for an increase depends on how you’ve managed your account.
It’s common for banks to entice potential customers with appealing perks in addition to an overdraft. Banks are well-aware that if they convince students to sign up for a student account, they’re likely to retain those customers for years after they complete their education. According to John Dentry at Pay.UK, the organization behind the Current Account Switch Service, many individuals maintain a long-standing relationship with their bank, retaining the same account through various stages of life. For instance, NatWest, RBS, and HSBC offer cash incentives, such as £100 cashback for new customers. However, Tom Allingham advises not to prioritize these perks over a larger overdraft. While cash is undoubtedly appealing, vouchers, railcards, and other goodies offered are not always as valuable as they appear. It’s essential to consider whether a shopping voucher is for a place you’ll actually visit and to note that railcards and tastecards are often on sale and can be purchased for less than their supposed value. Additionally, no freebie is worth selecting over a larger overdraft. For example, while HSBC’s Headspace offer is a nice extra, a one-year subscription through the app costs £7.99 with the student discount.
When setting up a student account, it’s beneficial to have your paperwork ready in advance. Although there isn’t a specific timeline for opening a student account, Kara Gammell suggests having it ready when you begin your course. This ensures that you have access to all the account features from the start and allows you to stay on top of your finances, particularly if you’ll need access to an overdraft. When applying for a student account, you must provide proof of your student status. Therefore, it’s worth establishing your account as soon as you’ve confirmed your place at university. Allingham advises gathering the necessary documents in advance, which typically include identification, proof of address, and proof of student status. Each bank has its own specific requirements, so it’s wise to check beforehand to save time and avoid any complications.
Opening a student account can be more complicated for those relocating to the UK for their studies. Generally, banks require individuals to have been residing in the UK for three years before they can open a UK student account. However, HSBC does offer a dedicated international student account, and other banks may permit opening a standard account.
It’s entirely possible for students to switch bank accounts during their course, which is worth considering if their current provider doesn’t offer a sufficient overdraft limit. Save the Student’s guide to the best student bank accounts provides an overview of available offers and specifies whether you can still qualify for perks when switching accounts while already a student. John Dentry encourages regular reassessment of whether your current account meets your needs and suggests exploring the benefits of switching. Different banks and building societies offer an array of services that can benefit students. Several banks allow students to switch existing accounts during their studies. If you’re unhappy with your account, check if you can switch and ensure that the overdraft limit aligns with what you already have. Sarah Coles adds a word of caution, advising individuals to be aware of any restrictions. Some accounts accommodate switches at any time during a course, while others have specific requirements.
In conclusion, selecting the right student bank account is vital for managing finances effectively during your studies. The overdraft feature is an essential component, offering interest-free allowances to act as a buffer when your balance drops below zero. While perks offered by banks may be enticing, a larger overdraft should be prioritized over these extras. It’s important to gather the necessary paperwork in advance and be prepared to provide proof of student status when opening a student account. Additionally, students can switch accounts during their course if their current provider doesn’t meet their needs. Regular reassessment and consideration of different banking options is encouraged to ensure the best banking services for students.
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