The good news is you’re in demand banks want to get your student loans in their account and if a bank can get you now, there’s a good chance they’ve got you for life. Or so they think. But how can you compare a free railcard with high interest rates or a generous final-year overdraft? We take a look at some of the best offers (at the time of writing) and provide a few invaluable pointers.
Don’t let free stuff cloud your judgment
When banks are waving free cash (£125 at First Direct) and £60 Amazon vouchers (thank you, HSBC) under your nose, it’s hard not to bite. But take a step back and think about what you really need longer term.
If you expect cash to be tight, the most important feature is a large interest-free overdraft and low charges on an unarranged overdraft. But be careful of the small print here. Some accounts will lure you in with interest-free deals in the short term but have crazy high rates longer term or sizable fines for missing repayments. Also check the bank doesn’t require monthly payments to qualify for their perks and freebies (£500 per term at Santander).
If you won’t have time for trips into a branch, find out which banks have the best internet and app-based banking.
Understand your overdraft…
Wahey! Free money! When you’ve calmed down take a moment to look at these magical facilities a little closer.
This year, banks are advertising interest-free overdrafts of up to £3,000. But don’t let headline offers mislead you. The maximum amount may only become available in or after your final year, and you’ll need to qualify for it in any case. While HSBC offers first-years up to £3,000, this could shrink to a mere £500 limit after the credit check.
Make sure you understand how much it will cost if you exceed the arranged overdraft. Santander charges an eye-watering penalty fee of £5 a day, which will clock up a mini mountain of debt in no time.
A generous interest-free overdraft isn’t just for those who expect to spend their student days in the red. If you’re well organised and have impeccable money management skills you could take out an interest-free overdraft and use it to top up your savings. But again, remember that the interest-free ride won’t last forever, so make sure you know when it ends.
…And how to pay it off
Most banks will automatically turn your student account into a graduate account when you leave uni and give you up to three years to repay your debt. We suggest you don’t leave it to the last minute or you could find yourself asked to pay back a £3,000 overdraft all in one go.
This is also a good moment to point out overdrafts are not the same as a student loan. You’ll find all major banks state overdrafts are repayable on demand in their terms and conditions. With a loan, paying back the debt gradually over the duration of your studies and beyond is all part of the agreement.
Consider the whole range of benefits
It’s not all about freebies and overdrafts. Here are just a few other benefits banks are offering their customers right now.
A credit card will improve your credit history if you use it wisely (or even not at all). Natwest and Royal Bank of Scotland student current account packages will give you this option.
If you’re concerned about banking ethics, you might want to consider the Co-op. They refuse to work with organisations with poor human rights or environmental practices.
Nationwide doesn’t offer student-specific banking but their FlexDirect account has one of the best interest rates around. You’ll receive 5% on credit up to £2,500 for the first year, as long as you pay in £1,000 a month. They also boast award-winning online banking.
The Barclays Student Addition account offers free text updates when your balance is getting low. So if you have trouble staying on top of your finances this could help you keep track.
If you want a bank that will look after you, First Direct is streets ahead according to a survey by the Institute of Customer Service. Although it doesn’t have high street branches or student-specific accounts.
Remember you can always switch
You don’t have to be loyal to the banks. Check out new student banking deals at the end of every year and switch if you find something better.
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