Ten best student current accounts: £160 bribe versus £240 pitfall

For as little as £40,000, investors are being promised a

Free money, anyone? As a new tranche of school-leavers descend on university campuses across Britain, so do banks begin their yearly fight to claim their cash.

But students beware: the generous interest-free overdraft and switching deals on display can turn into a money trap if you fail to keep to the conditions of the account or pay back money back in time.

Our research shows generous switching incentives worth £160 can quickly be cancelled out by onerous overdraft penalties of £5 a day.

Students are highly profitable to bank profits as those who open an account during their studies tend to stick for years. This means the banks can cross-sell more profitable products like a personal loan or a mortgage, after a student graduates.

And figures released this week show that less than 2pc of regularly-used current account customers switched last year, despite banks pouring £750 million into a “switch guarantee” that launched in 2013.

We rank the top ten banks by perks and switching bribes:

• More bank account switching? The number has actually fallen

1) Santander 123 for students

Santander’s four-year Young Person’s Railcard – worth £100 – is on offer again this year and gives holders one-third off rail travel. If you remain in credit, the account pays 3pc interest on balances between £300 and £2,000.

For those who need the cash, an interest free overdraft of up to £1,500 in the first three years of your course is available. Fourth and fifth year students get up to £2,000 interest-free.

This must be arranged – if you go into overdraft without getting it approved first, you could be charged £5 a day, up to £50 a month.

You need to pay £500 every academic term and register for online banking to receive these perks.

Perfect for: students who are likely to remain in credit, as the railcard and a £2,000 balance earns £160 in perks over the first year.

Avoid: if you’re unlikely to be able to pay £500 a term because you won’t be eligible for the perks, or if you might accidentally go into overdraft.

2) The Co-op student account

You’ll get £100 when you switch and £25 given to charity as long as you set up two direct debits and deposit £800 within a month of opening the account.

The self-described “ethical bank” offers students a £1,400 interest-free overdraft in their first year of university. This increases to £1,700 in second year and £2,000 in third year.

The bank’s own “ethical policy” means it won’t work with organisations it deems fail to uphold basic human rights or significantly harm the environment.

Apart from a £20 buffer, unarranged overdrafts can cost up to £240 a year in bank charges on top of interest of up to 18.9pc.

Perfect for: an instant cash reward without any onerous terms, such as having to pay in a minimum amount.

Avoid: if you want to earn interest on the money in your current account, unless you open a separate savings account or Isa. Find the best deals here.

3) Nationwide FlexDirect

Nationwide doesn’t offer a student account but the mutual’s “FlexDirect” account is widely recognised for offering one of the best interest rates in the savings market.

It pays 5pc on credit up to £2,500, as long as you pay in £1,000 a month, with no monthly account fee.

• Renault’s RCI Bank offers best-buy easy-access savings rate

You won’t pay any fees or interest on an overdraft for the first 12 months of opening the account, as long as it’s arranged with the building society first.

Perfect for: students with a regular income who can earn up to £125 a year in interest payments.

Avoid: if you’re likely to go into the red. Apart from a £10 overdraft buffer, going above this amount incurs a £5 a day or £60 a month fee if you don’t arrange it with the bank. This applies on top of the 18pc interest charge.

4) HSBC student account

HSBC gives you a £60 Amazon voucher and 15pc off a new Apple Mac computer, among other deals.

It also has the biggest interest-free overdraft at £3,000, available from first year to students aged 18 or older.

First year students also earn 2pc (or 1.5pc above Base Rate) on the first £1,000 of their student bank account.

For any students with an Apple device, the new Apple Pay service which enables users to buy using their iPhone or Apple Watch, will be launched by the bank on July 28.

Perfect for: if you think you’ll need the maximum overdraft and will make use of the money-off deals such as when buying a new computer.

Avoid: if you want a better switching offer.

5) First Direct current account

The online and telephone bank doesn’t offer a student account but its ordinary account has the best customer service ratings out of any bank or building society and gives you £100 when you switch.

You’ll also get a £250 interest-free overdraft.

But banking with First Direct usually costs £10 a month, with the first six months free. You won’t ever be charged if you pay in at least £1,000 to the account each month, or maintain an average balance of £1,000.

Perfect for: if you value excellent customer service – its staff sent one of our readers flowers when they heard that a family member had died – and know that you’ll be able to pay in £1,000 a month.

Avoid: if you can’t rely on the regular income and would prefer to have a bigger overdraft.

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6) Barclays Student Additions

Barclays offers free text alerts warning you if your balance is low and a £2,000 interest free overdraft – but a £1 per day fee is charged if you go over this amount.

Perfect for: a no-frills, no-perks account or for someone who finds it difficult to keep on top of their finances, so would benefit from the text alerts.

Avoid: if you expect your bank to offer a switching bribe.

7/8) NatWest/RBS

Both banks offer a National Express coachcard, worth £35, which gives holders one-third of coach fares for four years.

They have a £2,000 overdraft, but exceeding this amount costs £6 a month on top of 19.94pc interest.

Perfect for: if you need an instant overdraft via your smartphone.

Avoid: if you won’t use the deals on offer.

9) TSB student account

A small £1,500 free overdraft is made up for by a 5pc interest on balances of up to £500, paying up to £25 a year.

10) Lloyds Bank student account

Lloyds offers a free overdraft of £500 in your first year, increasing to £1,000 after seven months, and £1,500 after ten month. Above this, you’ll pay a monthly fee of £6 and 8.21pc interest.

 

[“source – telegraph.co.uk”]