University bound? Here’s how to pick a bank account and manage your cash

As thousands of students prepare for university, a host of freedoms lie in front of them. Living away from home, coming back in the early hours and lazy afternoons in front of the TV all await – as does managing money to pay for everyday life. But this last freedom can be fraught with problems: research from comparison site MoneySupermarket reports that students often spend more than their student loan, by almost £150 each term.

So with banks eager to get students’ grant checks and hopefully sign them up as customers for life, what are the best bank accounts and what should they be aware of?

Choosing a bank

A survey of 3,000 students by Which? ranked Santander highly for its sign-up incentives, while HSBC and Nationwide were praised for their customer service. TSB ranked poorly on customer service and RBS scored low for complaints handling and sign-up benefits.

When opening an account, students should check if they have to pay a minimum sum into it – for example, with Santander, at least £500 has to be paid in each term.

Hannah Maundrell of says students should check a number of things when choosing an account: does it offer a contactless card? What is the savings interest? Do you get free access to local ATMs? Is there a branch close to campus? Does it have a student adviser?

Owen Burek, editor of SavetheStudent, says returning students do not realise they are free to switch their current account. “Just one in six returning students plan to switch, which means they miss out on the latest offers.”

So a student could open, for example, a Santander 123 account for the four-year railcard and savings interest, then switch to an account with a bigger interest-free overdraft in their second year, Burek says.


The biggest attraction of a student bank account is that it normally comes with an interest-free overdraft, typically £1,000-£1,500 in the first year, a rarity on standard accounts. But Andrew Hagger, personal finance expert at MoneyComms, says not everyone gets the advertised maximum – it depends on your credit rating.

“But Barclays, HSBC and Nationwide offer the most generous limits of up to £2,000 in year two and £3,000 in year three,” he says.

Halifax, Lloyds and TSB are less generous, with maximum overdrafts of £1,500 in years two and three.

However, overdrafts should be treated with caution. “Remember, this is not free money, it’s a loan and has to be paid back,” Hagger adds.

Maundrell says overdrafts should carry a health warning. “Stick to your limit like glue, as you will pay interest and penalties for going overdrawn and could also damage your credit rating, potentially making it more difficult to get a new mobile contract now or a mortgage or a loan in future.”


While freebies might not be as generous as in previous years, most accounts offer extras, and Hagger says HSBC scores well on this. “It offers an £80 Amazon gift voucher, one year’s access to Amazon Prime – worth £39 – and a regular savings account paying 3%.”

Santander offers a four-year railcard worth more than £70, but with a lower overdraft limit of £1,500 in years one to three. It pays interest on balances starting at 1% on £100, rising to 2% at £200 and 3% between £300 and £2,000.

In the red

Budgeting for the first time can be difficult for young people, with some overspending at the start of the year before they learn how to manage their loan. Maundrell says a bank will be more lenient if spoken to early, before a student slips into the red. Santander, for example, charges £5 a day for unauthorised overdrafts, up to a maximum £50 a month, but nothing for authorised overdrafts. Some accounts offer free text alerts if someone is near their limit, she adds. “You should also check how long your overdraft will remain free after you have graduated.”

Managing money

Vivi Friedgut, founder of education technology company Blackbullion, says many students struggle to manage the three months of cash they receive at the start of each term.

“My advice is to open a second bank account for your loan, with a standing order paying a monthly salary to your main account, so you are less likely to blow your cash in the first few weeks,” she says.

When applying for an account, students will need to show a letter from Ucas, proof of identity, such as a passport or driving licence, and proof of address, such as a mobile phone bill.

Credit cards

A handful of bank accounts offer students credit cards, but approach these with caution. A 0% overdraft is far more valuable than a credit card charging 18.9%, which is the APR on the NatWest/RBS and HSBC cards, with credit limits of £500.

David Black, banking specialist at DJB Research, says credit cards give you money in an emergency. “But avoid using a credit card to make cash withdrawals as you start paying charges immediately,” he says.

Cards typically have a 55-day interest-free period on purchases, which means no interest is paid if the balance is cleared in full every month. Never use credit cards to cover bills or juggle debts, as uncleared credit card debt can quickly get out of control, Black adds.

App happy

A mobile phone will add to the cost of being a student, but it can also pay its way by helping them manage money better. There are plenty of personal finance apps to choose from, including a mobile-only current account from StarlingBank. Another app, Yolt, syncs accounts into one view so spending is clear, which makes budgeting easier, while MoneyDashboard shows where money is going. If sharing grocery, broadband or utility bills with fellow students, Splitwise can ensure everyone pays their way.

Friedgut warns that apps can also make spending money a little too easy. “Platforms such as Uber and Deliveroo will eat through your money really fast. Learn to cook and use public transport.”

Students at York University using a cash machine

Cash in hand … a survey shows students often spend more than their student loan, by almost £150 each term. Photograph: Don McPhee for the Guardian

Raising cash

There are ways to earn money through innovative means if the need arises. Old gadgets can be sold on MoneyMagpie or CompareandRecycle, while Paperclip is a digital marketplace to buy, sell, swap and freecycle items. It has groups at 30 universities, with subgroups for different halls, courses and societies.

But Friedgut warns that cheap deals do not always save you money. “A railcard is only worth it if you travel regularly, while a half-price pizza is only a saving if you were planning to eat pizza in the first place.”

The NUS Extra card starts at £12 and offers discounts on cinema tickets, eating out, fashion, technology, finance, travel and theme parks, but it is not the only discount offering. UniDays, SavetheStudent, StudentBeans and StudentMoneySaver are all worth checking out, while MoneySavingExpert has a student deals and promotions section.

Website Perlego gives unlimited access to hundreds of thousands of academic e-books for £12 per month. Sites such as Quidco, TopCashback and VoucherCodes give money back when shopping online, while MoneySupermarket lets you compare prices across 15 supermarkets before doing your shopping.

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