A guide to student accounts

If you have just begun your studies at university, or plan to in the near future, then you might want to think about getting a student account. These are special bank accounts aimed exclusively at students, with very favourable terms when compared to other types of account. The reason why students are offered such amazing deals by banks when they are at university is simple - most people tend to stick with the same bank they were with while they were studying for the rest of their lives, so the banks are willing to invest a little in order to win your custom in the longer term.

Student bank accounts are only available to full time students that are over the age of 18. In order to open one, you will need to present your ID card, and you will usually have to arrange to have your student loan paid into it as well. Typical features of a student account include large interest-free overdrafts, debit and credit cards, special discounts with their commercial partners, and gifts such as cash or Young Person's Railcards.

An interest free overdraft can be a very good thing, as you will no doubt need to dip into this when times are tight. However, don't be deluded into thinking that this is free money - it may seem like it while you are at university, but once you have graduated, the bank or building society will begin to add interest to your overdraft, so unless you anticipate being in a position to pay it all off as soon as you graduate, then the chances are that it may cost you a lot of money in the long run.

However, there is a way in which you could turn your interest free overdraft into free money, as long as you are prepared to be patient. Simply go for the account with the largest interest free overdraft, take out the maximum amount, and put it all into a cash ISA. When you graduate, simply empty out your ISA to pay off your overdraft, and pocket the difference. For example, 1000 invested in a cash ISA with a fixed interest rate of 5% would earn you over 215 over the course of a four year degree.

Whatever you opt for, make sure you check the interest rate and any charges on each product very carefully and make sure you fully understand what you are taking on. We would always advise consulting a qualified financial adviser, particularly if you have any doubts whatsoever.