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An Introduction to Student Bank Accounts

student banking

in Banking, Current Accounts, Student Finance

Finances can be extremely tight for students; especially given the global financial crisis, recent rises in tuition fees and the difficulty many young men and women are currently facing in finding work. At certain times of the year, such as when books are required for study, or towards the end of a student loan period, it can be difficult to make money last. It it, therefore, worthwhile to take advantage of the benefits that student bank accounts provide.

The main benefit that most student accounts offer is access to an interest-free overdraft facility. An overdraft allows a customer to withdraw a certain amount of money from the account, even if their balance is £0. This money needs to be paid back eventually, but it is extremely useful if, for example, you are a week away from your next student loan payment, but have exhausted your current funds. You can simply draw the money you require out, and pay it back from your next loan installment.

With most basic current accounts, interest is charged on the amount you are overdrawn, at an agreed rate, meaning you actually pay back more than you initially took out. Most student bank accounts, however, do not charge this interest, meaning you only pay back what you have taken out. Essentially, the overdraft facility on a student account acts as a safety net. Please check the terms and conditions of different banks and make sure your student bank account offers an interest-free overdraft.

It is worth shopping around the major banks and looking at the overdraft limits they provide. It is fairly typical for a student account to allow a student to be £1,000 overdrawn in their first year of study, and this overdraft limit will often increase in subsequent years of study. Some banks may offer up to a £3,000 limit, while others will offer substantially less. It is important that you are aware of your interest-free limit, because exceeding it could result in interest being charged at a very high rate.

Many banks require you to use your student account as your main current account during your years of study. Please ensure that your student loan payments are deposited into this account, as long periods of inactivity (typically more than 6 months without a deposit of at least £750) can lead to high interest rates being applied to your overdraft.

Other benefits of student accounts vary between different bank providers. Typical offers include things like student discount cards and rail travel discounts. It is worth shopping around and comparing what is on offer from different banks, however, your main concern should be the overdraft facility. A student account with a large interest-free overdraft limit is more essential than an account that offers other small benefits.

It may also be worth checking what is on offer in terms of graduate accounts, so that you can plan for the future. If possible, try to find an account which will automatically transfer to a graduate account after you finish your course. Graduate accounts will typically offer an interest-free overdraft for a couple of years, which may be useful in the initial months after graduation.

Generally, you can apply for a student bank account as soon as you have been accepted onto a university course. Banks will usually ask for proof of a university place, such as an acceptance letter from the university or a UCAS letter confirming your unconditional offer. Some accounts will not activate the overdraft facility until your first student loan payment has been made, although others will give you access to the overdraft immediately upon opening. Check the terms and conditions or ask at your bank. If possible, try to opt for an account which will give you access to your overdraft facility before your student loan is paid. This will provide you with extra stability in the unlikely event that there is a delay in student loan payments.

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