The rules have changed for choosing a student account. The old saw used to be: don’t choose an account until you get to your university town and find out what’s available on campus or near where you will be living.

The advent of online banking and the proliferation of ATMs and supermarket cashback has mostly put an end to all that. But, more important, it is almost impossible to wait until term starts to open your student account if you want to access your money immediately on arrival at college.

Changing times

Gone are the days of standing in line in the Bursar’s office to be handed a local authority grant cheque and then having to decide how to cash it. Now your loan money is paid directly into your student account, and you will already have been asked to nominate some sort of account.

However, letters confirming loan amounts due are going out around now, with a form attached giving you the option to change your bank details. If you have already nominated the Noddy and Big Ears children’s account you have had at the building society since you were six, you might now like to consider a proper student account, to take advantage of some of the special offers available to students – some of which are only available if you have your loan cheques or other maintenance payments paid in to it.

Another reason to get a move on is that money-laundering rules mean it can take longer to process your application. So you need to get it in in plenty of time – and if you are getting a free gift with your account, remember that many of these will be available 'only while stocks last'.

Freebies 

Which brings us to freebies. A student account is a good way to save some cash. As well as giving you an interest-free overdraft, most banks will give you some kind of handy freebie to lure you in, such as a Young Person’s Railcard or even two-for-one cinema tickets for a year. Shop around and work out what you will find the most useful. If you’re a film junkie and will only get the train a couple of times a year then it’s pretty obvious how you can score the best saving.

But one of the rules that has not changed is: don’t be seduced by the free gifts on offer. While the free gifts are certainly worth having, they should not be the determining factor in choosing an account.

Overdrafts 

The key feature to look for in a student account is, in fact, its overdraft facility. Unless you are one of the fortunate few students who have unlimited funding, or a very supportive family, you are bound to find finances a bit tight at some point, and will face the prospect of going overdrawn – possibly by many hundreds or even thousands of pounds. Figures from HSBC show that 56% of its student customers are overdrawn, with an average overdraft of £685. And if you were thinking of using a credit card to borrow, forget it. The interest rates are ruinous and it is the route to really serious debt.

For instance, last year (2007)  Lloyds TSB was offering a 512Mb iPod shuffle to new students. It’s a nice gift and would cost you £43 if you bought it on Amazon. Lloyds TSB also offers a free overdraft of up to £1,500 and further agreed borrowing at 7.9%. But if you go over that you will pay an eyewatering 29.8%, with a £30 per day overdraft excess fee (maximum £90 in any charging period).

Muslim students should note that Lloyds offers a Sharia-approved student account.

Interest 

To be honest, one thing you can probably ignore is credit interest on your account. Most of the time you are unlikely to have much in the way of a positive balance, so other considerations will come first. And if you are lucky enough to have some savings you want to earn interest on, you can always dust off that old Noddy account passbook again.

Your old life 

Now you’ve got a grown-up bank account, don’t automatically dump your old savings account. Some of the so-called 'children’s account' offer excellent rates for students and young people. Most children’s accounts move you on to an account with a lower rate of interest at the age of 16 or 18, but a few, such as Saffron Walden, let  you keep your account into your 20s and you only need a small amount in it to keep it open. So who cares if Noddy still adorns the passbook?

Taxing issues 

Remember, if you are not a taxpayer you should fill in an R85 form, so that you can have the interest paid without tax taken off. You can also consider opening an individual savings account (ISA), available from most banks and building societies, where you can receive interest tax-free, and it is likely to pay you a better rate of interest than an ordinary savings account.

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