Is it value getting a pupil present account?

Banks are once again beginning to roll out a raft of perks for student current accounts to attract student deposits ahead of the new academic year.

Last week Santander launched a prize draw for new Edge Student current account holders, with 20 students being in with a chance to win £27,750 and a further 30 set to win £9,250.

Meanwhile Nationwide is offering £100 cashback and 12 months of Just Eat vouchers worth £120 with its FlexStudent current account.

Being a student comes with a hefty price tag. For most students, it is their first taste of independence and first experience of paying rent and doing a weekly food shop. 

University of life: Student banking is often the first taste of financial independence for many

It costs £1,078 on average a month to be a student, according to website Save the Student, taking into account rent, household bills, food, transport and going out. 

The figure is based on its annual National Student Money Survey of more than 1,750 students from around the country.

The greatest expense is rent, which came in at £439 per month in 2023, taking up 41 per cent of the average student’s monthly budget.

On top of living expenses, many students are also faced with tens of thousands of pounds worth of debt in the form of student loans, which they will be repaying for a large chunk of their working life.

One of the main draws of a student current account is the whopping interest-free loans that come with them.

On a standard bank account you’ll get charged between 35 per cent and 40 per cent for an agreed overdraft – that’s £350 to £400 in interest charges in 12 months on a £1,000 overdrawn current account – if you’re borrowing £3,000 it’s £1,050 to £1,200 per year. 

Santander’s student account comes with an arranged interest-free overdraft of £1,500 for the first three years of study. This can increase up to £1,800 in the fourth year and up to £2,000 if students stay on to their fifth year.

Nationwide’s current account offers arranged interest-free and fee-free overdrafts to students of up to £3,000 by the third year.

NatWest and RBS have accounts which offer a £500 interest-free overdraft in the first term of first year, which can increase to £2,000 in the second term of first year until the end of the second year. Students can apply for up to £3,250 interest-free from year three onwards.

Meanwhile HSBC’s student account comes with a £1,000 interest-free overdraft in year one, increasing to £2,000 in year two and up to £3,000 in years three and after.

Andrew Hagger, founder of financial experts MoneyComms, said: ‘I’d definitely recommend a student bank account over a standard bank account – mainly due to the interest-free overdrafts.

‘You never know when you may need to borrow – you may set off to uni thinking you can manage, but life isn’t always that straightforward – there are often unexpected expenses that crop up and which need paying for.’

How much of an overdraft you’ll get in later years depends on your credit record and you need to ask for the increases at the end of the year, it does not increase automatically.

Outside of the overdraft, student accounts come with other perks that students simply wouldn’t get with a standard current account which could help with living expenses. 

‘Most student accounts offer incentives too such as a £100 sign-up cash payment – others may offer a cut-price travel card,’ Hagger added.

Significant savings: Santander says a railcard on average saves 16-25s around £192 every year

Along with its prize draw, which will give 20 students the chance to win three years worth of tuition fees, Santander is also offering a free 16-25 railcard to students who sign up to its current account. 

Normally, a rail card costs £30 a year or £70 for three years. Santander said the average 16-25 Railcard user saves £192 a year with the card, meaning a potential average saving of £768 over the four-year term.

NatWest and RBS are offering students an annual Tastecard, worth £55 per year. With this, students can get two meals for the price of one, 50 per cent off a food bill or 25 per cent off the entire bill at thousands of UK restaurants.

Nationwide is offering students a £100 cash bonus on signing up for its FlexStudent account and 12 months of Just Eat vouchers worth £120. 

Student overdrafts explained 

The temptation to ‘live in the overdraft’ because they are interest-free may be strong and could encourage some students to spend more than they normally would. 

But interest-free overdrafts which come with student current account can help with any unexpected expenses that crop up and provide an emergency cushion without being heavily penalised.

Hagger said: ‘The 0 per cent overdrafts may prove to be a temptation for some, but setting up a budget planner before you set off for uni with your income and expenditure can help you staying out of the black (if you stick to it) – but if you need to borrow a little from time to time you know you’re not going to get penalised heavily for doing so.’

> Five best current accounts: See This is Money’s pick of the best current account perks