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1 Student Bank Accounts: Overdrafts and incentives Banks and building societies are attempting to woo students with flashy introductory offers. But which accounts are actually best? For most students, one of the biggest challenges will be managing their finances. This typically starts with the selection of a suitable student account. Overdraft The most immediately attractive things about student accounts are the freebies. However, they are just a distraction. The thing you should be looking at first is the size of the interest-free overdraft. The maintenance loan students receive rarely covers much more than the cost of accommodation for the year, so many students may have to venture into their overdraft. The biggest interest-free overdrafts are with Barclays and Halifax, which offer up to £2,000 and £3,000 a year respectively. Most other banks operate a tiered system starting at about £1,000 with the amount increasing annually. Using any more than the interest-free overdraft can be very expensive, with rates for further authorised borrowing running at about 9%-10%. If you only need to use a little bit more than the standard overdraft, then HSBC's rate is the cheapest at 3% above the Bank of England base rate. Going beyond the limit of an authorised overdraft is a risky business with most banks charging between 16% and 29%, although HSBC charges the same 3% above base rate as it does for authorised overdrafts. 2 Incentives Students are always told that freebies should be no more than a perk and shouldn't define their choice of bank. The reality is they will probably be too tempting to ignore completely, so the key is to get ones which are actually useful. The NatWest account comes with a free five-year railcard for those aged 16 to 25, which gives a third off UK train tickets. If you are going to travel by train to get to university or to visit friends this could be very useful. It also offers a student discount card which offers money off at a number of high street stores. However, this isn't as good as the NUS Extra card offered by Lloyds TSB, which also offers a free three-year Youth Hostel Association membership which gives discounts at hostels throughout the country. Interest Most of the banks don't offer any credit intrerest, or do so at a very low rate. HSBC and Santander both offer 2% for the first £500, although HSBC only pays this for your first year in education. Credit Cards There are two main things to avoid in student banking if you can: unauthorised overdrafts and credit cards. The interest rates are massive and debts can build up very quickly. All charge just under 20% for borrowing on credit card and most impose a limit of £500, although Santander allows you to choose a lower limit of £100, while with Lloyds £500 is the minimum amount. HSBC's credit card gives the most flexibility with the first eight weeks being interest free. The Student Bank Account offers in full Lloyds TSB Up to £1,500 interest-free overdraft in the first year rising to £2,000 over six years; three-year Youth Hostel Association membership; 0.1% credit interest. 3 NatWest Up to £1,000 interest-free overdraft in the first year rising to £2,000 over five years; five-year 16-25 railcard; 0.1% credit interest. Barclays Up to £2,000 interest-free overdraft for up to five years of study; discount on mobile phone, laptop and broadband. HSBC Up to £1,000 interest-free overdraft in the first year rising to up to £2,000 over five years; free travel insurance for two years; 2% credit interest up to £500 for the first year. Halifax Up to £3,000 interest-free overdraft for up to five years of study; 25% off AA breakdown cover; 0.1% credit interest. Santander £1,000 interest-free overdraft in the first year rising to £2,000 over five years (or longer if study continues); mobile, gadget and laptop insurance; 2% credit interest on first £500. Royal Bank of Scotland Up to £1,000 interest-free overdraft in the first year rising to up to £2,000 over five years; discount on laptops; 1% credit interest. Co-operative £1,400 interest-free overdraft in the first year rising to £2,000 over three years; no incentives or credit interest.
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