How to choose the right student bank account

Are you heading off to university this year? We help you get on the right financial footing.

If you're heading off to university this autumn, the chances are personal financial development isn't high on your 'to do' list.

In the summer before I became a student, I remember my dad sitting me down and patiently trying to stuff some budgeting advice into my head. Most of it went in one ear and out the other.

I now wish I'd paid more attention. I chose my student account on the basis that the bank had given me a pretty cool money box when I was 11, which is not an ideal foundation for a solid financial future.

Here, I'm going to outline the main things you should be looking for in a student bank account - so hopefully, you can learn from my mistakes.

Overdraft

An overdraft isn't free money, and it's really important that you don't spend yours unless you absolutely have to (more on that in my 'final warning', below).

For many students, however, an overdraft is going to be part of university life, so you need to find a bank account that meets your needs in this respect.

There are three main types of overdraft you might encounter:

Interest-free

The vast majority of student accounts now offer substantial interest-free overdrafts (typically £1,000 to £3,000). Many offer a tiered system, with the level of interest-free borrowing increasing each year you're at university.

Bear in mind that you may not be offered the full interest-free amount advertised by a particular account. Some of the higher overdraft limits are quoted as 'up to', and the overdraft you're actually offered will depend on your credit score.

Authorised

If you reach your interest-free overdraft limit, you can ask the bank to extend your debt. This extension is known as an authorised overdraft.

You will be charged interest on this section of your overdraft, so try to avoid getting to this stage if at all possible. That said, an authorised overdraft is considerably better than the next horror on the list...

Unauthorised

If you exceed your overdraft limit without telling your bank, you're into unauthorised overdraft territory.

The interest rates on unauthorised overdrafts are always hefty and sometimes astronomical (most lenders charge between 15% and 30%). The interest repayments - combined with the original debt - can very quickly lead you down the path to financial disaster, and an unauthorised overdraft should be avoided AT ALL COSTS.

If you are having money trouble, bite the bullet and let your bank know before you exceed your overdraft limit. Lenders are far more likely to be sympathetic and lenient if they haven't been left in the dark.

Interest when in credit

Another factor to consider is the rate of interest paid on any positive balance in the account. If you're lucky enough to be in the black most of the time, a decent in-credit rate could provide you with some valuable extra beer (sorry, books) money.

Other incentives

Student bank account marketing tends to focus on the flash incentives on offer. Back in my day it was a choice between £50 cash and a young person's rail card. Now, students are also tempted by a heady mix of broadband, phone, computer and entertainment deals.

Incentives are all very well (and some - like a five year rail card - could save you hundreds of pounds). However, don't take out a student account just on the basis of nifty extras. If the fundamental overdraft requirements don't meet your needs, you could end up losing much more than the value of the incentive in interest charges and penalty fees.

What's on offer this year

With so many student account options out there, it can be difficult to see the wood for the trees.

To make your choice easier, here's a breakdown of what's on offer from the main UK providers:

A final warning

I don't think I was a particularly spendthrift student - I didn't drink much, buy many clothes or party particularly hard. However, every now and then I'd buy something really odd (and completely unnecessary) on a whim.

For example, I once went through a phase of wearing coloured contact lenses (even though my vision was perfect). And there was the time I bought a flash skateboard to impress a boy (I used it precisely three times, then fell off and broke my wrist).

Each time I bought something silly, I'd think 'that's alright - I've got a nice big chunk of my overdraft left to spend'. Of course in reality, the biggest, shiniest interest-free overdraft in the world is still not your money.

It is one of the debts you will graduate with, and if you haven't cleared it in a few years' time, the interest will start to rack up. Ten years on - still struggling with my pile of student debt - I really wish I'd got my head around that one at the time!

More: A student's guide to money | Six bad financial habits you can kick today!