How to choose a bank account as a student or graduate
Chances are, your time as a student or recent graduate won’t be the most luxurious. Seeing your bank balance in the black is a rare privilege, and you probably find yourself teetering on the edge of your overdraft allowance more often than you’d like.
But that doesn’t mean you shouldn’t spend time choosing the right bank account for you. In fact, if anything, it’s all the more reason to do so. At this stage of your life, the very best accounts are the ones that offer extra security and support when you need it the most – whether that’s between Student Loan instalments, or before you’ve secured a graduate job.
So with that in mind, here’s what you need to consider when you’re picking a bank account.
Don’t get distracted by the bank account freebies
All too often, students pick their bank account based on the sign-up bonus on offer. This could be a free Railcard, a shopping voucher or even cold, hard cash.
For some, this makes sense. A Railcard can lead to massive savings on train journeys, and who doesn’t want a free shopping voucher?
But in reality, a Railcard only costs £30 to buy yourself, while the shopping vouchers and cash rewards are rarely worth more than £100. That’s not nothing, but compared to what you could be getting with your bank account, it’s small fry.
Focus on the overdraft allowance
For most of your adult life, it’s best to stay out of your overdraft when you can. Usually, you’ll be charged interest for dipping into this emergency supply – however, this isn’t the case when you’re at university.
The overdraft on your student bank account has a 0% interest rate, meaning there’s no charge for using this money. This makes it one of the safest and most easily accessible forms of extra cash while you’re at uni.
That said, not all student overdrafts are born equal. Some student bank accounts only have a 0% overdraft up to £1,500, while others offer up to £3,000. Clearly, if you’re struggling to make ends meet, an extra £1,500 of low-risk cash is better than a £100 sign-up bonus.
Be wary of the bank’s use of “up to”, though, as you’re unlikely to get the maximum 0% overdraft straight away. Instead, the allowance is usually tapered, so more is available the longer you’ve been at uni.
Also bear in mind that even if you’re in your final year, you still might not get the full amount. Other factors, including your credit score, will be taken into consideration. So, always do your research before assuming you’re about to get access to a £3,000 0% overdraft.
Check the repayment conditions
Student bank accounts come with generous 0% overdrafts – but not forever. Once you’ve finished university, the end of this perk is suddenly on the horizon.
That’s not to say you shouldn’t use your 0% overdraft, or that you should be excessively worried about going over a certain amount. What it does mean is that you shouldn’t blindly go into your overdraft without knowing how, and when, you’ll pay it off. And this is where graduates (and soon-to-be graduates) really need to pay attention.
Fortunately, your access to a 0% overdraft isn’t cut off the day you don your robes and receive your degree. That’s because your student bank account will usually become a graduate account which, thankfully, comes with an interest-free buffer too. This gives you a little longer to climb out of your overdraft without incurring any extra costs.
But unlike while you were at uni, when the overdraft allowance grew each year, the opposite is now true. As a graduate, the maximum 0% overdraft on offer will shrink year-on-year, eventually disappearing altogether. Although some accounts retain this perk for three whole years after graduation, others cut you off after just one.
As you’re approaching the end of your time at uni, take a look at what the repayment terms of your graduate account will be. If your bank will only give you another year interest-free, switch to one with a better offer – and do it soon, as some graduate accounts don’t accept newcomers who have already left uni.
And don’t just assume that things will suddenly be rosy once you’ve left student life behind. It can take a while before you find a graduate job and start to make money, so it’s definitely better to be safe than sorry.
So what are you waiting for? It’s time to start looking for your next bank account!
About the author: Tom Allingham is the Head of Communications at Save the Student, the UK’s number one student money website. Founded in 2007, Save the Student provides free, impartial advice to students on how to make their money go further, including countless guides, student discounts and daily deals.
