Everything you need to know about student bank accounts

Updated 2nd September, 2014

Given the inadequacy of the maintenance loan, a student bank account is a must. You'd expect the offerings to all be pretty similar but bizarrely, there are more differences than one might expect - be sure to check out the differences in our student bank accounts comparison.

Still, swapping up your account is a bit of work - but it's well worth doing. Got any other questions? Email us on david@studentmoneysaver.co.uk.

Why should I apply for one?

Student bank accounts bear the strain of tight uni finances a little better than regular accounts.

The benefit of student bank accounts are the flexible, interest-free overdraft they provide, which will be vital for freeing up the spare cash you’ll need for small things, like, y'know, electricity. Or food. Or water.

Quite simply, you're going to spend more at university than you can imagine - even the little things add up. A student bank account gives your wallet a little breathing room.

How do I get an account?

To get an account, you’ll need to provide proof of who you are and details of your uni place.

Be aware they will ‘credit score’ you (judge your suitability as a customer on your financial past) before granting an account - it isn’t a big deal but the systems are odder than a drunken uncle and there’s a small chance you’ll be rejected on some pretty peculiar criteria. Each bank sees something different in a student’s history though, so refusal from one doesn’t guarantee it from others.

Anyone headed into a full-time degree or equivalent, or postgraduate study, should qualify for a student account but every bank has exceptions, so double check.

It’s best to apply in branch so you can get an idea of how the bank operates –is it quick, friendly, efficient? Do they talk you through everything or skim over the details? If a bank isn’t close by, you can almost always apply online or by telephone.

Why do I need an overdraft?

An overdraft is the bank lending you money you don’t own - but to get through three or more years without much income, you will probably need the helping hand.

Given that for many, the maintenance loan doesn't even cover rent, you're going to have to have money from somewhere. An overdraft is there when your savings no longer cut it.

If you choose to stick with a regular account, rather than a student account, an overdraft will be charged interest and often a daily fee. When you’re in debt, interest is the fee you pay the bank for borrowing their money, typically charged as a percentage of the total borrowed amount. In short: an interest free overdraft saves you cash: result.

How do I choose between accounts?

Just ask yourself what you want: is it just for a little extra cash or will you spend most of your university years languishing in the overdraft?

Most students are looking for the account which offers the largest guaranteed interest-free overdraft for the longest time –including after graduation.

Your first port of call should be to read our comparison of student bank accounts.

How much should I go for?

Be realistic: aspiring shopaholics need more cash than serial savers. Know your spending habits and choose accordingly.

Bigger might seem better but play safe; larger overdraft = more temptation. Three grand to play with might help you party like Charlie Sheen but you’ll need solid plans for paying it back, otherwise you face years of nervous breakdowns…like Charlie Sheen.

What are the limits?

Remember, the overdraft doesn’t get refreshed year on year. To spell it out: the amount you borrow has to last you the whole course. An overdraft of £1000 in the first year extending to £1500 in second year means you only get £1500 –not £2500.

Never forget the overdraft is the bank lending you money you don’t have –and they’ll hunt you down like the corporate incarnation of the Terminator when they want it back. Strike a balance between the maximum amount you need and the interest rate which kicks in come repayment.

Can I get more if I need to?

Using Student Money Saver will help stop you breaking the overdraft but there may be an emergency when you need the money, like that time you go flat hunting, check if there’s room to swing a cat, and find yourself stumping up for veterinary costs.

Ask the bank to see if you have the option to extend the limit and what interest rates will hit you for doing so; Barclays are prepared lend an additional grand but charge interest at 8.9% APR.

For the pub-quiz kidz: APR is ‘annual percentage rate’ and is basically the entire amount the bank will charge over the year, including any extra charges, as a percentage of the money you’re borrowing.

Are there charges?

Most student accounts are fee free –unless you spend over the agreed overdraft limit (the maximum the bank agreed you could borrow). Then it’s game over; banks will typically charge:

  • A high rate of interest on what’s borrowed.
  • A daily fee for breaching your overdraft.
  • Fees on unpaid and returned items.
  • A fee for every item bought which eats into your overdraft.

These fees very quickly mount up - you could easily find yourself paying hundreds of pounds.

Don’t risk it; if you are desperate for more money, arrange it with the bank or secure part time work. An unarranged overdraft makes debt difficult to avoid.

Do freebies matter?

No, they don't.The bank is going to turn around with a Cheshire grin and say ‘Hey friend, have a Railcard and these Spotify vouchers’ and sure, that's hours of quality listening pleasure right there - but the bank across the road might be able to save you a few hundred pounds in interest and charges. Think of a freebie as the cherry on top- nice if you’ve got it but not worth paying extra for.

Read the small print

Just be careful comparing figures; ‘up to’ and ‘guaranteed’ mean different things and signing up for an account with an overdraft ‘up to’ £3,000 may bring a disappointing experience when the bank refuses to lend more than £1,500. It can be difficult to get the full amount, so if you have to have a certain figure, ‘guaranteed’ is a safer bet.

Get an account which works for you. NatWest offer ‘emergency cash’, which allows internet and mobile banking customers to get up to £300 if their card is lost or stolen. And we’ve all had those nights…

What happens after graduation?

It might seem a way off but this is a biggie. When does the interest on the overdraft kick in? How much is it? Is there a graduate bank account you can shift to with similar perks?

If you max out your overdraft, be sure you can move it into a graduate account and be careful –some banks will automatically upgrade your student account to a graduate account but it may not be the best deal around. Others, like Halifax, don’t offer a £3000 graduate overdraft (despite it letting undergrads borrow that much) so you could be in for some heavy fees.

Sadly, graduating doesn’t guarantee instant employment so make sure your bank won’t be taking huge sums while you’re looking for work, or you might yourself facing Pot Noodles every breakfast, lunch and supper until you’re thirty. Seriously.

Go into your bank and ask what they can offer you and look for another interest-free overdraft to handle the overdraft you’ve picked up with the student account.

Are any extras worth it?

See what's on offer. Only you can really answer that, but here's some questions to start you off:

  • Some banks, like Santander, have a student friendly advisor –you might want to talk to them rather than face a sour bank manager.
  • Does your bank offer a graduate account?
  • Will you be happy with a debit card or will you need a student credit card too? And if you think you might want a credit card, ask yourself twice. They’re the easiest way to build up debt.

I really, really don't think I need the overdraft?

If you only need your overdraft to see you through buying Christmas pressies but spend most of your time in living off your own money and not the banks’(being ‘in credit’), we still reckon it's worth the overdraft being there, as a safety net. If you're sure you don't need it, don't take it.

What's on offer?

...As we say, read our thoughts on the differences between student bank accounts.