Best student bank accounts: £3,000 interest-free

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Updated: 4/1/2012

Banks love students. It’s proven that you’re likely to stick with the bank you choose for your student finances for life. The banks know this and they try to entice you to choose them with offers of freebies and huge overdrafts. We’ve waded through the various student accounts out there to help you find the best one for your needs.

Should I get one?

With mounting student debt, having a huge free overdraft if you don’t really need one can be seen as an unnecessary temptation. So a large free overdraft facility might not always be the best thing to go for.

But for those that need it to finance their time at university it can be a helping hand, as long as you don’t fritter it away.

If you don’t need it for rent or living expenses, you can take advantage of the bank’s generosity and invest the money to make a little profit off it.

Who can get one?

To get your hands on a student account you can’t just say you are a student. You’ll have to provide written proof that you’ve been accepted into full-time university education in the UK. Some banks will only issue student accounts to over-18s. However others will accept you from 17 and a half.

If you are a mature student you are still entitled to a student account. All you need is your proof of acceptance letter.

Student accounts vs current accounts

The main difference is the whopping interest-free overdrafts that you can get with a student account. Most banks offer some sort of overdraft facility at no or very low interest. Banks love to throw money at students but it’s really important to remember that you will eventually have to pay it back.

Another difference is that you are technically only allowed to have one student bank account at a time. Unfortunately this means you can’t just go around the banks opening up student accounts to get the freebies.

Generally student accounts only last for the time that you are a student, although some stay open for a few months after you finish your course. After this, you have to move to a graduate account or to a current account. Most banks will automatically transfer you from a student to a graduate account. However this will also often change the amount of your overdraft or even charge you per month. So make sure that your bank will give you a good graduate account before you graduate.

What am I looking for?

You need to decide exactly what you want out of a student bank account. It could be a branch on your campus, loads of freebies or a big overdraft. Here’s a rundown of what you need to be looking for:

1. The in-credit interest rate

The interest rate is the amount of extra money you can earn while your money is in the account. In order to make as much money as possible, you need to choose an account with the best (i.e. the highest) interest rate. This only applies to you if you are going to be in credit for the majority of your time at university. If you are getting a loan then it’s probably worth it. However, if you are intending to live off your overdraft, it’s not worth worrying about.

2. Overdraft limits and charges

An overdraft is the amount of money you can borrow from your bank without organising a formal loan. Student accounts offer interest-free overdrafts where you don’t have to pay any extra money for borrowing a certain amount. You must make sure you understand all the terms and conditions relating to overdrafts from your bank.

All accounts will have overdraft limits, and if you exceed that limit you will have to pay a charge. If at any point you need to extend your overdraft you often can by talking to your bank and arranging an authorised overdraft. But you’ll have to do this before you exceed your limit in order to avoid charges. Often if you exceed your maximum limit they will charge you at a normal or even higher rate of interest. You could end up paying charges per day, even if you go just a few quid over your limit. Avoid this happening by choosing a bank you can contact easily.

Find out what happens to your overdraft after graduation – look out for how the bank deals with reducing the free overdraft allowance. Some lenders take away the interest-free overdraft immediately, so if you are in your overdraft, you’ll find yourself paying a lot of interest. Others gradually wean you off your overdraft, giving you a chance to pay it back as you work.

3. Debit cards

We all know what debit cards can do. However, often what we don’t know is their limitations. Some debit cards are not widely accepted, in the UK or abroad. This can be a pain if you are planning to do lots of student travelling.

Some also have a very low withdrawal limit. This could be bad as it limits how much you can get out of your bank in a day. However, this could be advantageous as it will put a stop to any spending splurges on nights out!

Make sure that you get a good debit card that is widely accepted. Maestro works all over the UK and the world, as does Visa Debit. However, don’t get fobbed off with cards like Visa Electron that aren’t accepted as widely.

If you are planning to travel it’s best to find out how much it will cost you to use the debit card offered by the account abroad. You will have to pay charges, including conversion fees (for changing currency) and a withdrawal fee. Find the cheapest charges and you’ve found the card for you.

4. Credit cards

A student credit card is another way banks try to push more borrowing on students. Banks make loads of money from these products and so are keen to offer out as many as possible. It can be useful to have a credit card but it can also be very dangerous as it is another way you can spend money that you don’t have.

5. Location

You need to be able to have regular access to your bank – whether it’s just for paying in cheques, or if you ever have money problems. If you’re living in halls of residence and your university is not near the city centre, it may be worth asking if there is a branch open on your campus. Having a campus branch will save on travel costs and time. Also the bank will hopefully have advisors that are specially-trained to help students.

6. Internet banking

It’s also important to be able to manage your money as easily as possible. Most banks offer internet and telephone banking and if they don’t, they probably aren’t the best way to go. Banking online saves you heaps of time and puts you in control of your budgeting. Some banks also offer mobile banking, although the services included vary from bank to bank.

7. Free stuff

To reel you in, loads of banks have free gifts or special offers. The thing to remember with these is that although they are nice, they are the least important part of a bank account. The interest rate and overdraft facilities are much more important. Don’t let the freebie affect your judgement!

Saying that – if the accounts are pretty much the same, a freebie will help you make your decision.

Which one is best for you?

The best student account for you depends on how you will use it. If you are likely to need to spend more money than you have it is better to choose an account with a larger overdraft facility.

If you are an international student you should make sure you choose an account that doesn’t require you to have been a UK resident previously.

If it’s important to you that you can get to your bank easily then you should look at the larger banks. They have more branches and so will be more likely to have one near your university or on campus.

If you travel often, you may prefer an account that offers commission-free currency and travellers’ cheques. Commission free means you do not have to pay the bank to convert the currency to or from pounds for you.

We’ve sifted through all the offers, overdrafts and debit card facilities and here are our best buys:

Best if you can maintain a healthy balance: Santander

The Santander Student Account offers you a tempting 1.00% AER interest on the money in your account on balances up to £500. This doesn’t seem like much, but most student accounts offer you no interest at all. HSBC also advertise a 2.00% AER, but be aware that this is for the first £1,000 in your first year at uni only.

Best for those who need to use their overdraft: Halifax

Halifax is offering a massive interest free overdraft of £1,200 from day one. The overdraft remains the same for up to five years. After you’ve graduated, Halifax will change your account to a graduate account that will function on the same terms and conditions for one year. This basically gives you a year to pay off your overdraft and after that, you can choose one of their current accounts or close the account. As a student it’s very easy for your finances to be all over the place so the cost of exceeding your overdraft is also important. Halifax also provides an authorised overdraft at a rate of 0% EAR variable.

Compare student accounts – rates, charges and freebies

Account	Credit Interest	Interest Free Overdraft	Authorised Overdraft	Incentives
The Santander Account (Student)	1%AER on balances up to £500	Year 1 – £1,000 Year 2 – £1,250 Year 3 – £1,500 Year 4 – £1,800 Year 5 – £2,000	9.9%	Mobile, gadget and laptop insurance worth over £240 a year
Barclays Bank Student Additions	0%	Up to £2,000 per year for 5 years with an option to extend to £3,000	8.9%	Save £75 on a new monthly mobile or tablet contract with Phones4u, up to 20% discount on Student Travel Insurance
The Co-operative Bank Student	0%	Year 1 – £1,400 Year 2 – £1,700 Year 3 – £2,000	9.9%
HSBC Student Bank Account	2% AER variable on balances up to £1,000	Up to £3,000	3% above base rate	Two years Worldwide Travel Insurance
Halifax Student	0.1%	Up to £3,000 per year for 5 years	7.2%	Commission-free foreign currency and traveller’s cheques
Lloyds TSB Student	0.1%	Year 1-3 £1,500Year 4-6 £2,000	8.21%	Free NUS card, cheaper driving lessons, 40 free music downloads and free YHA membership 3 years
NatWest Student	0.1%	Year 1 – £1,000 Year 2 – £1,250 Year 3 – £1,500 Year 4 – £1,750 Year 5 – £2,000	N/A	Emergency cash (£300) if your card is lost or stolen
Royal Bank of Scotland Student Royalties	0.0%	Year 1 – £1,000 Year 2 – £1,250 Year 3 – £1,500 Year 4 – £1,750 Year 5 – £2,000	N/A	Emergency cash (£300) if your card is lost or stolen