New students face tricky choice of bank

New students risk being blinded by deals - such as discounts on fashion brands - when choosing a bank account rather than guarding against debt.

Financial experts say most students would benefit from interest-free overdrafts ahead of any incentives that dominate marketing to freshers.

Students could find themselves paying over £150 a year extra in overdraft charges with some accounts.

Half of students struggle to make ends meet, according to the students' union.

Older students, those studying healthcare, and parents in education were most at risk of financial difficulties, the National Union of Students said. A "significant minority" turned to short-term, high-cost payday loans in order to cover expenses, it added.

Thousands of students are in the process of choosing a bank account ahead of the academic year. Banks are keen to sign them up owing to their future earning potential and possible long-term custom, so bombard them with money-off deals.

These range from rail and coach discount cards to cashback deals with major retailers.

"While these [deals] seem very attractive early on, the more useful perk for most students might be the size and length of the free overdraft on offer," said Brian Brown, head of insight at financial information service Defaqto.

He said that the incentives were less generous than they used to be, but teenagers were still inundated with mail and messages about these offers after they turned 18.

Andrew Hagger, of financial website Moneycomms, said: "The only freebie that may be worth a closer look is the free four-year 16-25 railcard from Santander which could save you plenty on your train fares, particularly if that's your chosen mode of transport between home and university.

"However, for most students, being able to borrow as much as possible interest-free will prove to be the biggest financial benefit."

Interest-free overdraft limits vary between banks, but they can also vary between students.

An overdraft is not guaranteed. Anyone wishing to borrow larger sums than an initial £500 or so may need to go through an application and will have checks on any credit history.

The limits on interest-free overdrafts vary between accounts and choosing between them may be time-consuming, according to Mr Brown.

"No product covers all the bases," he said. "The best approach is to decide which perks and features are most useful to you and then assess what is on offer rather than jumping on the first attractive perks at the freshers' fair."

That requires some planning - a task that many will be carrying out for the first time.

"Budgeting isn't fun or sexy but it is an essential life skill that can save you from worry, heartache and being clobbered with hefty bank charges," said Mr Hagger.

"Tapping out a quick spreadsheet on your laptop is all it takes to make sure you have a handle on your money matters and to know how much you have got in the bank to last you until the end of term."

NUS advice

A recent survey by NatWest Bank suggested that Edinburgh was the most expensive city in which to study in the UK. The most cost effective was Portsmouth, followed by Liverpool and Newcastle.

Irrespective of location, the NUS said that 50% of students struggled to cover day-to-day expenses. The problem was particularly acute near the end of term, and it called for student financial support to be paid monthly.

The most common reason that students gave for "seriously considering" leaving their course was financial difficulty, it said in its Pound in Your Pocket report.

"We would always recommend that students seek help from their university or students' union advice service if they think they are encountering problems," the NUS said.

"They will be able to check they are receiving all the support they are entitled to, can support students to access other forms of help such as hardship funds, or help negotiate with debtors if need be."

Other priorities when deciding which account to choose have changed with technology. The location of branches in a university or college town was a major consideration until fairly recently.

Now, access to modern payment methods is arguably more important for many of these young customers.

Mobile and online payment systems may make the task of regular payments, such as paying rent to landlords, easier, says Mr Brown.

Insurance

Students looking to organise their finances may concentrate on their bank accounts, but insurance is an area that also requires their attention.

Cover for valuables was often overlooked, Mr Hagger said. Many university halls of residence include basic insurance in their fees.

Students may find that their parents' insurance policies already cover for some losses incurred while they are away.

Bikes are rarely covered under these policies so they may require further cover if they are valuable.

Insurance companies will need to be informed when a student takes their car to university or college with them, if living away from home.