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Students' banking guide

There are so many different bank accounts and financial products available, it can be difficult to know which to pick when you're a student. Here are some things to look out for:

Student accounts - these bank accounts are specifically designed for students, so often include an interest-free overdraft. They also commonly include gifts or discounts for things that students use a lot or just like. But it's important to also look beyond the freebies. The Lloyds TSB Student Account includes an interest-free overdraft of up to £1,500 and mobile banking, free until August 2010, as well as free music downloads, free NUS Extra Card, £75.99 worth of AA discounts, free 1 year YHA membership, and much more.

Mobile Banking some banks, such as Lloyds TSB, offer Mobile Banking. This is extremely useful as you can check your balance wherever you are, and you can do many of the things you can do with online banking, such as check your balance and transfer funds.

Offers - add up how much they would cost to buy so you can compare what the different banks are offering. Would you even use them anyway?

Introductory rates - check how long certain conditions or introductory rates last and how they change when that period ends. The interest rates may look great, but they may not last.

Location - you can manage your account online, over the phone, or via your mobile so in some ways location doesn't matter, but if you like to go into a branch and speak with someone, check which banks are nearby.

Online banking - most students use online banking and it's a great idea because you can closely monitor your spending so you don't get any nasty surprises.

Credit/store cards - these can be a useful way to manage your money when used appropriately. There's usually an interest free period so if you can pay them off every month that's great. They can also help spread the cost of expensive items.

Overdrafts - An overdraft is where we are willing to lend you money up to a pre arranged limit and you are usually charged a set amount of interest for this. Lloyds TSB offers an interest free overdraft for students which gives you flexibility when you are at university and it also means that you won't be charged as long as you remain within your agreed limit. If you go over the limit we have agreed with you, we may extend you an unplanned overdraft. You'll be charged a set amount of interest as well as daily and monthly fees as long as you continue to use your unplanned overdraft. To help you manage your money, we also provide our Mobile Banking Pack free until August 2010 (£2.50 a month after that). With this service you receive text messages when you're near or exceed your agreed limit. You can also manage your money on your phone wherever you are.

Good debt and bad debt

With the advent of government-sponsored debt in the form of student loans, it is now common for students to have debt. But the real danger of this is that students might begin to view all debts as the same. They aren't. There is good debt and bad debt. A good debt is a student loan because the interest is so low, e.g., 1.5% p.a. An interest-free overdraft is another good debt. Bad debt is the kind you get with high interest loans or credit cards where the interest could be anywhere from around 5%p.a. to 30% p.a. These should be avoided wherever possible, but if such a debt is accrued then paying it off should become the number one financial priority.

Student Loans

Student Loans are the cheapest form of long-term borrowing available, with the interest following the lower of ‘inflation or interest rates plus 1%'. Recently it's been between 1.5% and 3.8%. Being set at inflation means you don't pay any ‘real' interest - the amount you have to repay stays the same, relative to inflation, for the whole duration of the loan - so it could hardly be a better deal.

There are two different types of Student Loan. One covers tuition fees (maximum £3,225 for 2009/2010). The other is for help towards day-to-day living costs such as rent and travel. All eligible students can get the full Student Loan for Tuition Fees, and at least a partial Student Loan for Maintenance - whatever their household income. (A Maintenance Grant is worth up to £2,906 for 2009/2010). This situation is different in Scotland as students don't have to pay tuition fees.

You won't have to start repaying Student Loans until you have left uni and are earning more than £15,000.

Graduate accounts - these are designed to ease you into your working life by still giving you student conditions, such as an interest-free overdraft, but phasing it out slowly as you begin to earn.

When trying to choose one, the most important factor is how long you get an interest-free overdraft for. This outweighs the introductory tempters and bonuses. Also, don’t fall for the fee-paying graduate accounts that give you ‘better’ interest-free overdraft deals. Invariably it works out worse to pay a monthly fee, such as £5-£10, than to simply find the no-fee accounts with the best 0% overdraft conditions. The exception is if you think you’ll use the additional benefits and that they are worth paying extra for.

Help is available

Managing your money for the first time can be daunting, but there is plenty of help out there. Lloyds TSB offer lots of advice and guidance at www.lloydstsb.com Check out the other sections of this website too.

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