The recent A-level fiasco has thrown the plans of half a million students hoping to start university into chaos. But a spot of homework should still enable them to get rewards picking a bank account.
Fortunately, there is no need for dodgy algorithms and grade predictions when choosing a bank.
Young adults starting university next month are eligible for a student account that comes with benefits and interest-free overdrafts.
Do your homework: Young adults starting university next month are eligible for a student account that comes with benefits and interest-free overdrafts
The banks are not just being nice. They know that once a bank account is set up, the customer may be hooked for life. Last year just one in 50 customers switched bank.
Jake Butler, a finance adviser for money savings website Save the Student, says: ‘It is easy to be lured in by freebies but freshers should consider what these are worth.’
He rates Santander as the best value for those going away to university and planning several train journeys a year to return to visit family and friends.
This is because Santander offers a four-year 16-25 railcard worth £30 a year. It enables students to pay a third less for off-peak train travel. The bank’s ‘123’ student account also benefits prudent students who are able to stay in the black – paying 1 per cent interest a year on balances of up to £2,000. Santander also offers an interest-free overdraft of £1,500 for the first three years, rising to £1,800 for year four, and £2,000 for any studies beyond that.
One of the most generous accounts for students dipping into the red often is offered by Nationwide Building Society. It provides a £1,000 interest-free overdraft for the first year, £2,000 in year two and £3,000 for years three and beyond.
After graduation, Nationwide’s ‘FlexStudent’ account becomes FlexGraduate, with the interest-free overdraft limit incrementally lowered over three years – from £2,500 to £1,750 then £1,000. Exceed these limits and interest charges of 39.9 per cent a year apply.
HSBC offers similar limits for students, but from November the interest-free overdraft on its ‘Graduate’ account will start at £1,500 for the first year and drop to £1,000 for year two. Borrowing above this is also charged at 39.9 per cent.
NatWest offers several freebie choices and an interest-free overdraft rising to £2,000 in the final year, while Lloyds and TSB offer interest-free overdrafts that go up to £1,500.
Butler says: ‘Banks are not loyal to customers so students should not be loyal when choosing a bank. About 40 per cent of all students opt for the bank that their parents use – for no other reason than they are simply following their lead. This is a mistake.’
The presence of a bank branch on campus is a consideration for those who appreciate the personal touch of speaking to someone face-to-face. But, increasingly, students do most of their banking online, often just using a phone app.
Among a new breed of challenger banks are online-only providers such as Monzo, Starling Bank and Atom. Save the Student says though these are useful for day-to-day budgeting, they are no substitute for a high street provider. It says having a physical bank to visit is important if a student has a problem such as an unexpected cash crisis. Andrew Hagger, of the financial research company MoneyComms, agrees, saying: ‘University is a challenging time for students learning about money and a high street bank you can visit can be a life-saver.
‘Budgeting is important because there are lots of financial constraints. Sadly, at the end of your studies, bank loans and debts will at some stage need to be paid off.’
Student Finance is the Government-backed organisation providing loans for day-to-day living costs and accommodation. This is usually paid into a student’s bank account at the start of each term.
The maximum amount that can be borrowed is £7,747 for those living at home for the forthcoming academic year and £9,203 if living away from home. This rises to £12,010 if students live away from home and stay in London.
On top of this is a tuition fee loan of up to £9,250 a year that students must pay direct to the university. Interest is currently charged at up to 5.4 per cent a year after graduation, with graduates in England and Wales repaying loans when their annual earnings exceed £26,575.