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Banks are again starting to offer a range of benefits for student current accounts to attract deposits from them ahead of the new academic year.
Last week, Santander launched a prize draw for new Edge Student current account holders, with 20 students in with the chance of winning £27,750 and a further 30 winning £9,250.
Meanwhile, Nationwide is offering £100 cashback and 12 months of Just Eat vouchers worth £120 with its FlexStudent current account.
Being a student comes at a high price. For most students, it is their first taste of independence and the first time they pay rent and do their weekly shopping.
University of Life: Student banking is often the first experience of financial independence for many
According to the Save the Student website, being a student costs an average of £1,078 a month, taking into account rent, household bills, food, transport and going out.
The figure is based on the National Student Money Survey, which is conducted annually with more than 1,750 students across the country.
The biggest expense is rent, which rose to £439 a month in 2023, accounting for 41 per cent of the average student’s monthly budget.
In addition to living expenses, many students also face tens of thousands of pounds of debt in the form of student loans, which they will have to repay for much of their working life.
One of the main draws of a student checking account is the huge interest-free loans that come with them.
On a standard bank account, you’ll be charged between 35 and 40 per cent for an agreed overdraft – that’s £350 to £400 in interest charges over 12 months on a current account with a £1,000 overdraft; if you borrow £3,000, the charge will be between £1,050 and £1,200 per year.
Santander’s student account offers an interest-free overdraft of £1,500 for the first three years of study. This amount can increase to £1,800 in the fourth year and up to £2,000 if students continue into the fifth year.
Nationwide’s current account offers interest-free, fee-free agreed overdrafts to students up to £3,000 up until their third year.
NatWest and RBS have accounts that offer a £500 interest-free overdraft in the first semester of the first year, which can increase to £2000 in the second semester of the first year until the end of the second year. Students can apply for up to £3250 interest-free from the third year onwards.
Meanwhile, HSBC’s student account comes with a £1,000 interest-free overdraft in the first year, rising to £2,000 in the second year and up to £3,000 in the third year and beyond.
Andrew Hagger, founder of financial experts MoneyComms, said: ‘I would definitely recommend a student bank account over a standard bank account, mainly because of the interest-free overdrafts.
‘You never know when you might need a loan. You might go to college thinking you can handle it, but life isn’t always that simple – unexpected expenses often arise that need to be paid.’
The amount of overdraft you’ll get in future years depends on your credit history, and you must request increases at the end of the year – they don’t increase automatically.
In addition to the overdraft, student accounts offer other benefits that students simply wouldn’t get with a standard checking account and that could help with living expenses.
“Most student accounts also offer incentives, such as a £100 registration fee; others may offer a reduced-price travel card,” Hagger added.
Significant savings: Santander says a railcard saves an average of 16-25 people around £192 a year
In addition to the draw, in which 20 students will have the chance to win three years of tuition, Santander is also offering a free rail card for students aged 16 to 25 who register their current account.
A railcard typically costs £30 a year or £70 for three years. Santander said the average Railcard user aged 16 to 25 saves £192 a year with the card, which is a potential average saving of £768 over the four-year period.
NatWest and RBS offer students an annual Tastecard, worth £55 a year. With it, students can get two meals for the price of one, 50 per cent off the meal bill or 25 per cent off the total bill at thousands of UK restaurants.
Nationwide is offering students a £100 cash bonus when they sign up for their FlexStudent account and 12 months of Just Eat vouchers worth £120.
Student Overdrafts Explained
The temptation to “live in overdraft” because they have no interest can be strong and may encourage some students to spend more than they normally would.
But the interest-free overdrafts that come with student checking accounts can help with any unexpected expenses that arise and provide an emergency cushion without being penalized heavily.
Hagger said: ‘0 per cent overdrafts can be tempting for some, but setting up a budget planner before you head off to university with your income and expenses can help keep you out of the black (if you stick to it), but if you do need to borrow a little from time to time, you know you won’t be penalised severely for doing so.
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