F93G04 Freshers Week at University UK: Aberystwyth university undergraduate students signing up to join social and community groups and societies at the Freshers Fair in the opening week of the academic year, September 2015, Wales UK
Freshers' Week can prove a financial shock to a student's system © aberCPC/Alamy

There is a lot to think about before heading off to university. As sixth-formers nervously await their A-level results, choosing the right student bank account might not seem like a big deal.

Unfortunately, I was among the many prospective university students who failed to realise what effect this decision would have. Consequently, I put off the task as long as possible. Then I opened pretty much the first one I could find without shopping around.

That was three years ago. At the time, I was rather pleased with myself for being organised enough to open an account with a hefty interest-free overdraft. At least I had got one thing right — most students will need to borrow at some point during their time at university, and so a generous buffer is therefore vital.

So I patted myself on the back and went on to tackle the more important issues, such as whether to take my signed Thierry Henry shirt up to Oxford with me.

Unfortunately, I had underestimated how much thought needed to be put into choosing a student bank account — not to mention how best to manage the money contained inside.

For me, like many others, the past few years have been a gradual process of financial discovery — full of surprises, regrets and envy of my better-informed peers. Hopefully, by highlighting some of the best accounts today and sharing my own experiences you will be better prepared than I ever was.

The first major financial shock I faced was discovering that my bank account wouldn’t be packed full of Student Finance funds to spend during freshers’ week.

Maintenance loans are paid in termly instalments, with the first not paid until a few weeks into your first term after registration is completed. So it may be necessary to dip into the overdraft, or ensure that you have enough from your parents or from your own savings to get you through what will probably be an expensive start of term.

Plenty of further trips to Bomad — the bank of mum and dad — are likely to ensue. Many students and parents do not realise the extent to which their student loan offer falls short of expected living costs.

Maintenance loans are means-tested — the more your parents earn, the less you will be able to borrow. Officially, an assumed “parental contribution” is expected to fill the gap, but in many cases, parents massively underestimate how much their student sons or daughters will need just to get by.

As the university term continues, students will start to realise just how much — or little — any freebies given away with their student bank accounts actually save them.

Students who have opened accounts with Santander get a free four-year 16-25 railcard (worth more than £70) and tend to be quite appreciative of the one-third discount they get on trips home and elsewhere.

Santander estimates that the average student saves £767 on their travel costs over four years. Moreover, this railcard can also be paired with your Oyster card, which entitles you to a one-third discount on off-peak travel on London’s Tube, Overground and DLR network.

However, not everybody will save as much as they anticipated. For example, those tempted by HSBC’s freebie offering one-year’s Amazon Prime Student membership may be surprised to find out that Amazon actually offers Prime Student free for six months to all university students — and the remaining six months can be bought for just under £24. Getting free delivery on internet orders could also tempt you into spending money that you don’t have.

Student bank accounts
BankInterest free overdraft limit over four years (£)BenefitsNotes
Nationwide1,000-3,000* Cashback at various retailersYou must pay in £500 into your account each term to unlock the overdraft
Santander1,500-1,800*Four-year 16-25 Railcard You must pay in £500 into your account each term to unlock the overdraft
NatWest/RBS2,000Four-year National Express Coachcard three debit transactions every month to unlock the overdraft
HSBC1,000-3,000*Free £60 Amazon gift card, plus a year of Amazon Prime StudentThe graduate account interest-free overdraft is only £1500
Barclays1,000-3,000*Cashback at various retailers£8 fee for any transactions that are returned unpaid, such as direct debits or bounced cheques
* Overdraft increases incrementally during the four years. Source: FT research

Cashback offers are another perk that has the potential to be a false economy since you first have to spend to make a saving. Some banks offer students discounts of up to 10-15 per cent with brands such as Nike, Argos and Boots. Both Nationwide and Barclays match cashback offers with your purchasing history, so you are more likely to be offered discounts that will actually be useful.

Further down the line, after your first year of studying is complete, another common pitfall awaits. Most banks incrementally increase the maximum overdraft limit available over the course of a student’s time at university. However, students often end up disappointed to find that they are given less than was initially advertised when they opened their accounts.

If you examine the small print, you will see overdraft limits are normally advertised as being “up to” certain amounts. The maximum overdraft limit is only usually obtained by those who have a good credit rating — something that many young people struggle to prove. Santander and Nationwide are in the minority of banks that guarantee their advertised overdraft limits.

As students progress even further into their studies, the consequences of being too far into an overdraft may begin to dawn. As graduation looms, so does the transition from a student account to a graduate account and, along with it, the loss of your prized interest-free overdraft.

Most banks will maintain your initial interest-free overdraft limit for a year after you graduate, and gradually whittle it down over a few years. For others, the process is more abrupt — and therefore costly. HSBC, for example, immediately cuts your interest-free overdraft limit to £1,500 upon graduation. This means that if you’re fully into the maximum £3,000 overdraft limit when you transfer to your graduate account, you will be charged 19.9 per cent interest on the excess £1,500.

To avoid straying precariously close to your overdraft limit, there are plenty of money-saving tips worth considering. The most important habits that I adopted during my time at university included regularly studying my bank balance. Install your bank’s app on your phone. You’ll gain a better idea of where you are overspending and may even find that you are paying for subscriptions that you never use.

I also found it useful to write up an expected “ledger” of termly income and expenses, noting the dates when the biggest line items would be coming in or going out.

Despite having to learn all of this through experience, I’ve just about managed to get through university with my finances intact — and without having to sell off that signed Thierry Henry shirt.

Edwin Esosa is an FT intern

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