Student Bank Accounts: Everything You Need To Know

There are, as with everything involving money, good and bad sides to student bank accounts. Here’s some advice on what a student bank account is, what it’s for, how it works, and what to watch out for.

What’s a Student Bank Account?

Good question. Please don’t feel patronised – it’s not always easy to decipher until you have filled in the paperwork and experienced it for yourself.

A student bank account is a bank account, for students (stay with us here), that allows an interest-free overdraft over an entire period of study. This means that you can run yourself up to x amount of debt to the bank, and not have to worry too much about paying it back until you graduate. It’s really that simple. The tricky bit comes when you eventually do have to pay it back. The even trickier bit, as far as we are concerned, is using the overdraft facility properly.

What’s a Student Bank Account For?

Students of a bygone era used to receive maintenance grants to help with living costs – that did not need repaying. Tuition fees were paid for by local education authorities.  Money issues were not a great concern for the student of the past.

This all started to change in the late 1990’s when UK students were asked to pay £1,000 towards tuition fees. Maintenance grants were largely replaced by repayable student loans. Nowadays students are asked for up to a maximum of £9,000 per year in tuition fees alone. In this backdrop, the student bank account is the helping hand to make financially surviving your studies that little bit more achievable.

Not only is there the interest-free overdraft that gives you easy access to emergency funds outside of the student loan payments, but usually there are a host of other incentives and freebies on offer to help you in your day-to-day studenting such as student railcards, NUS Extra cards and gift vouchers.

How Does It Work?

Well, the bank will work out most of the paperwork for you and you’ll just need to go in and give them a few documents like your passport, a letter of acceptance from your university and anything else they might ask for. The process and rules and regulations differ from bank to bank and may take some time, so we suggest getting ahead with everything and visiting your bank for an appointment before you even go to university – when you receive your letter of acceptance.

The reason why it works – why the banks bother to lend you a fair amount of money for four years and ask nothing in return – is because the bank wants you as a customer. Most students will eventually pay back their student overdrafts and stay with the bank they choose till later on in life when they start jobs as young professionals.

What To Watch Out For

Well, there’s a lot to take into consideration before applying for a student bank account. The one that springs to mind first and foremost is the question “do you really need a student account?” Think carefully. Because you might not need one, and if so that’s probably a good thing. However, if a bank is offering generous incentives, do consider taking them up on the offer and then try to resist using the overdraft facility. An extreme suggestion to resisting using the card is to cut it up.

First off, one of the main problems that most of the students we know have with their bank accounts is that they don’t use them properly! It’s immensely frustrating watching a friend desperately squeeze the last £10 out of their overdraft for another couple of drinks, knowing that they’ll still be in debt to the bank even when they receive their next student loan payment.

What we’re talking about here is the “new zero”. Basically, when a bank offers a student a £1500 overdraft over the duration of their course, the student decides he/she is now rich and proceeds to spend the full £1500 over the next year/few months/few days (it can be done, we’ve seen it, it was horrible).

The result is a student who is carrying more debt than before the student account was set up, no idea how to manage without the pot of gold they’ve used, and with no more safety net. Minus £1500 is now the new zero. It is, as we said, frustrating to watch. Don’t do that.

What To Consider

Can you, honestly, afford to not get a student bank account and therefore avoid the temptation of the “new zero” situation that, believe us, you’ll be tempted towards?

So if you’ve planned your finances out (and if you haven’t planned your finances out, do) and realised you probably won’t need that little safety net; don’t get it because you will be far too tempted to spend it on stuff that you won’t, probably, in all honesty, need. Seriously. Think about it. That’s the last we’re going to say on the matter.

Why They’re Good

We don’t mean to come across as one of those bank-hating, anarchistic lunatics who think that we should abolish money and come up with a better system (although we’d love to hear your suggestions). We’re just suggesting that there’s no need for everyone who goes to university to apply for a student bank account. Most almost definitely should – they’re incredibly helpful things and often come with incentives.

Because, chances are, at some point you’re going to have a bill that you haven’t planned for or have planned badly or just a month that ended up costing a lot more than it should have, and at that point you’ll be very, very grateful you set up an account and the bank can take a bullet in your stead. Without one, you may find yourself eating rice for a month and hoping that your housemates would occasionally toss you a vegetable to fight off scurvy.

That’s when the overdraft facility should be used – when you need a safety net to catch you if something doesn’t go according to plan. And that is when student bank accounts are at their most useful. Just plan to pay back any overdraft you use in these emergencies.

An excellent feature (in our eyes, at least) that many banks offer is a scaled overdraft facility, meaning that over the first term a student can only run themselves up to £500 in the red, in the second they can go down to £1000, and in the third they get the full £1500 treatment. This is presumably the bank’s way of avoiding the “new zero” problem, and it does help a lot. Issue is, that some students just treat -£500 as the new zero in the first term, -£1000 as the new zero in the second, and so on. Still, it helps, and it’s a good feature to have, even if it doesn’t look like one at the time.

When To Get One

The flippant answer is “when you need one”. The more complex (and much better) answer is “as soon as you work out you will need one”. Do not – seriously do not – leave it to the last second and hope everything will work out OK. Banks are serious about this kind of thing and won’t be too keen on you wandering in and finally asking for a change to your account halfway through the year because Fresher’s carried on for far longer than it should have and now your phone bill’s come through with a vengeance. That’s when the banks won’t give you an account.

Go before you get the bills and whilst everything still looks like it will be OK – even if it won’t be. That’s when banks offer student accounts and that’s when you need to visit. Otherwise you too will be Googling ways to avoid scurvy on a budget (vitamin C tablets, it turns out, are pretty cheap).

How To Get One

Select the bank that offer the best deal for you and visit their local branch. You may need to visit on the one day of the week that the correct employee is present, so maybe check with the bank before you turn up.

On the day you will be expected to bring along proof of your ID such as a valid UK passport or UK driving license, proof of current address such as a letter from a utility company or a recent bank statement. You may also be expected to produce your UCAS letter showing an offer of a place on a course. All major banks publish a list of documentation required online, so have a quick read before you set off.

Size Matters

If the most you’ll need an interest-free overdraft facility for is to cover a particularly heavy weekend or to pay a phone bill that you’ve forgotten about, you probably won’t need the enormous amounts of money that a lot of banks offer to students – £500 will cover all but the most horrendous of unexpected expenses, and that should be a wide enough safety net for most students.

Try to avoid choosing the biggest possible overdraft facility available to you just because it’s the biggest – that’s just inviting temptation where it’s not needed or wanted. Yes, it might come in handy at some point but once you’ve set up a student bank account it’s relatively easy to increase the amount of money you can borrow should you require it in the future.

Payback

This will either be blatantly obvious to you, or come as a total surprise, but you do have to pay back the money you take from your overdraft. Just like your student loan, the money available in your overdraft is not yours.

However, like your student loan, you are granted some time to pay it all back. When you graduate, most banks will let you switch to a graduate account. Graduate accounts typically offer fee-free overdrafts for around three years after gradation, with the overdraft limit scaling down year on year. Therefore in the first year after your graduation you may be able to secure a fee-free overdraft of anything between £1000 and £3000, shrinking to a maximum of around £1000 in the third year after your graduation.

While this can help ease the financial blow as you attempt to make your way in the world of employment, you must act reasonably quickly after you graduate to switch your account to a graduate account. The process may not be automated and you could find yourself facing some hefty overdraft fees if you forget about it and your account and overdraft facility is transferred to a basic account.

A Quick Apology

We know we’ve been banging on about the whole ‘student bank accounts being used irresponsibly thing’ throughout this article, and we’d like to make it clear that this is not a reflection of our opinion of you. We’re just warning you that it’s a very slippery slope towards the bottom end of the overdraft barrel (sorry for the mixed metaphors), and that should be something very carefully remembered when the student account benefits kick in.

So, sorry if we sound like a nagging granny who still sleeps with all of her money under her mattress (we keep it under the pillow). We don’t mean to be and we’re almost entirely certain you’ll be immensely responsible with your cash when you get hold of it.

And Finally

If you’re not too keen on a student account after all, for whatever reason, or if you’re one of the unlucky people that the bank decides are not worth the risk (we were going to get you a “welcome to the club” card but we couldn’t afford it) there are a few other options that may well be open to you when you’re in need of a little bit of disposable income.

Often your university may be able to provide you with a temporary loan that will cover the cost of living expenses for a short time. However, this is not a permanent option and should not be treated as one. Student finance exists more or less exclusively to help students through university without having to worry too much about the costs, and the amount lent to each student depends on their family income – if you can’t afford to study effectively, and don’t want to bring your bank into it, there should be a member of staff at the university who deals with student finance and will probably be able to do something.

A student bank account is a reliably useful helping hand; be careful and good with it, and there will come a time when you’ll be immensely thankful that you did.

What’s Available Now

Before you go, take a look at the student accounts that are currently available to you:

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