Managing Finances as a Student

Finding a way to minimise costs is one of the first lessons that first-year students need to learn.

Apart from securing your student loan, your first priority is to get the right bank account.

Banks are keen to attract students because they know that once you’ve joined, they’re likely to keep you for life. Don’t get tempted by the flashy freebies on offer at this time of year, such as DVDs or even an i-Pod.

Your bank decision should be based on dryer but more important factors. As a student your account is unlikely to be in the black for long, and so a bank’s overdraft rates are far more important.

The student bank account market is dominated by the so-called ‘big four’: Barclays, HSBC, Lloyds TSB and NatWest’s owner, the Royal Bank of Scotland.

They all offer interest-free overdrafts, which generally start at £1,250 in the first year and rise by about £250 a year. However, their rival Halifax has raised the stakes by increasing its first-year limit to £1,750.

With the amount of debt you will almost inevitably build up, it is important to consider how long your interest-free overdraft will last once you’ve left college. Beware, for instance, that the Halifax account is only interest-free for a year, whereas most others extend the offer for three years, giving you valuable time to try and clear the debt.

The Halifax deal is still not a bad one, however, because you can switch accounts.

Beyond the interest-free limits, you should look for the authorised and unauthorised rates for going over your interest-free limit.

HSBC has the lowest rates for unauthorised overdraft spending, at 14.8%. NatWest charges 17.8%, and Royal Bank of Scotland and Lloyds TSB both demand 29.8%.

Keep a track of your spending, and if you think you may go over your limit, contact the bank first. They may waive your charges if you notify them.

Some banks will offer a fee-free credit card with a limit of £500 as part of their student deal. Steer clear of other cards, particularly store cards.

The best interest rates on the market are only available to people who have built up a good credit rating, something that as a student you won’t have done.

There has been a lot of publicity in recent months about people discharging their debts by declaring themselves bankrupt. However, don’t think you can wriggle out of your debts this way.

Your student loan and bank overdraft will not be written off. The bankruptcy will be on your credit record forever, and it will be very difficult to borrow again in the future. This affects your ability to buy a house, and get a car loan, for example.

For further background information, see the UK Net Guide features on dealing with debt, student loans, holiday money saving tips, store cards and credit cards.