Student bank accounts: All that glisters is not gold

Banks are offering students everything from cheaper train travel to pizzas

As the start of the university year approaches, experts are advising students to think carefully before choosing a bank account.

Many High Street banks are offering attractive incentives, such as free Amazon vouchers, travel cards and even discounts on pizzas.

Several banks also try to entice students by paying credit interest - for money they have in their account.

But however desirable such deals may appear, they are not always a bargain.

In many cases, the cost of borrowing money outweighs the benefits of credit interest and free gifts or discounts.

"Very often some of the add-on benefits can be appealing, but you should always look beyond these and consider your more long term requirements," says Kevin Mountford, banking expert with MoneySuperMarket.

Even if you have already opened an account, it is now easy to switch to another bank.

Some banks offer students discounts at fashion retailers

Cost of borrowing

If you are likely to spend a fortune on clothes, or take-aways - or you travel a lot - you will need to study the cashback offers and discounts very carefully.

If you are good at budgeting, and are likely to have cash sitting round in your account, you may want to go for the bank that offers the highest credit interest.

But if you are a student who needs to borrow from time-to-time, then study how much you can go overdrawn without having to pay a fee - the interest-free overdraft (see table below).

So even though Santander offers good credit interest, for example, you could pay £600 a year if you exceed your overdraft limit, and so become liable for £50 a month in unauthorised borrowing charges.

"I still think the ability to borrow as much as possible interest free is the major benefit," says Andrew Haggers, a personal finance expert with MoneyComms.

Halifax and HSBC allow students to borrow up to £3000 with no interest charges.

However Lloyds, TSB and Santander offer a maximum of £1500.

Any more than that and Lloyds, for example, will charge you 8.2% Equivalent Annual Rate (EAR), plus £6 a month.

So borrowing an extra £1500 from Lloyds, on top of your agreed overdraft, could cost you £195 a year.

A fuller version of the tables above can be found here

Remember too that the free overdrafts on offer are "maximum" amounts. What the bank actually gives you will depend on your credit rating. If you haven't been resident in the UK for three years, you may also be granted a smaller overdraft.

And check whether the overdraft facility will be extended into the year you leave university. That is when you may actually need it most.

David Black, personal finance analyst at DJB Research, advises students to budget, and plan their spending.

"Always arrange overdrafts in advance - unauthorised overdrafts, if permitted, could prove seriously expensive and you may get charged a fee if a transaction is not honoured," he says.

If you are very canny with your spending, you may even consider borrowing from your Halifax or HSBC current account - for free - and investing it in a savings account.

If you are prepared to lock your money away for six months, you could earn up to 2%, according to Savings Champion.