Best Student Bank Accounts 2009-10

Banks try to bribe students with freebies to entice you to open an account with them; but these sweeteners should only be a secondary consideration. Instead…

Go for the bank that’ll give you the biggest and longest 0% overdraft facility

All student accounts offer overdrafts, enabling you to withdraw more money than you’ve put in there, i.e. to borrow it. This year’s average student is likely to graduate owing more than £20,000, so it’s vital to find the cheapest way to borrow.

The solution is to go for the lowest interest rate available, as the lower the rate is, the less the debt costs you (read a full Interest Rates Beginners’ Guide).

The big draw of student accounts is that they let you borrow interest free, PROVIDED you stay within the limits. This is as good as it gets; a much bigger gift than any freebie. Therefore the question that pays is, ‘which bank gives the most 0% borrowing, for the longest period?’ (find out in the Best Buys).

Warnings

Before you grab one though, there are a couple of stark warnings about overdrafts…

• NEVER exceed the agreed limit without permission

  If you do, the cost skyrockets, with huge swathes of interest and penalties. Always talk to the bank first; getting it wrong can leave you with credit rating problems lasting years. While you may’ve heard about Bank Charges reclaiming, this isn’t easy, and by far the best practice is to avoid them in the first place.

• NEVER borrow more than you need

  Just because you’re not paying interest doesn’t mean you won’t need to repay the debt - you will! Never borrow unnecessarily; remember once you graduate you’ll pay for these debts, so budget as best as you can and never spend more than is absolutely necessary.

  Borrowing is dangerous; please educate yourself about how it works before doing it in any form. There’s more info in the Student Finance and Interest Rates guides.

• You will be credit scored

  When you apply for any debt product, including a bank account with an overdraft, the lender will credit score you. This is to decide how desirable a customer you are based on behavioural predictions from all your prior financial data.

  Yet as a student, it’s likely there will be very limited data on you, which makes credit scoring very difficult. Sadly this can leave some students rejected due to ridiculous anomalies, and there may be no rhyme, reason or solution to this. For more info read the Credit Scoring guide.

Should I ignore the free gifts?

The value of gimmicks, freebies and even cash bribes is pale compared to huge interest-free overdrafts, but when a number of different accounts offer similar overdraft levels, then freebies are great tie-breakers.

Always remember why freebies are offered though.

Banks know most customers never switch, so they hope a £50 freebie buys your business for life

It’s for this reason that while the big high street banks are usually the least competitive providers, in the student market they’re all fighting it out with super hot products. They know that if they get you now, they can make serious bucks out of you for a long, long time.

However, savvy students can take advantage. Choose the right student account and max out your gain from it, but don’t let their short term bribe and free overdraft buy you for life. Grab what’s on offer, then after uni, ditch and switch to the Top Graduate Account and eventually the Top Bank Account.

Freebie grabbing often prompts the question, ‘can I open more than one student account?’. It used to be fine, but banks’ criteria are now tighter, usually requiring you to deposit your student loan or main income in there. So, multiple-freebie grabbing is now much more difficult, but still sometimes possible.

What if you don’t need to borrow money?

The short answer is get a student overdraft and invest into something like FastStudentCash.com, because its 0% every extra money you can make is total profit!

If you want to simply make a bit extra, you could do something known as ‘deficit banking’, this is where you keep a big negative balance within your 0% overdraft limit. You then transfer

That rare student breed - those likely to be in credit - can PROFIT by opting for the account with the biggest 0% overdraft, then using a budgeting technique I call ‘deficit banking’.

The premise is to keep as big a negative balance within your 0% limit as possible, then put this money into the top paying Instant Access Savings Account (and interest earned will be tax-free for most students). When your overdraft limit drops, move the necessary cash back to your current account (use the Tart Alert to remind you).

This means interest is earned on money the bank lends you for free, Done right, this can add around £300 to a student’s coffers over the length of a course, and similar tricks are possible with student loans (see the Student Funding article).

However, this isn’t an excuse for spending or borrowing more. If you’re not financially disciplined, DON’T TRY IT.
 

Top Student Bank Accounts This Summer 2009-10

Top Student Credit Card