The do’s and do not’s of student finance

By Alex Higgs, banking expert at Confused.com Exam results are looming and the annual scramble for banks to win a new batch of undergraduate business has started. With only 6% of UK customers switching their current accounts each year, banks are well aware that the chances are, if they sign up a young adult, they are signed up for life. But for the students themselves, quickly made decisions over finance could affect their financial stability into the future. By sticking to these do’s and do not’s financial matters now and in the future will be a lot easier 1. Do open an account well in advance New students will need an account to have their loan paid into and from which to pay their accommodation, tuition fees and other expenses. Not having one set up could result in delays in receiving much needed funds and using a non agreed overdraft to pay bills whilst an account is being set up could lead to some hefty charges. For parents worried about their children’s ability to manage their finances away from home pre paid cards could be a good training aid. Pre loaded with cash and without the option to go overdrawn, setting one up and allowing your teenager to manage their own finances for a year is a good test. Pay their allowance in and ask them to buy their own clothes, gifts for friends and family etc. You could also ask them to manage the family food shopping for a month and give them the budget for this. It also provides a safe and secure means for the parents/grandparents to give students “a little” something without it being in the easily lost or stolen traditional wodge of cash. 2. Don’t be lured by gimmicks Anything that comes free with the account as an incentive is being funded from somewhere, whether it’s through higher fees and charges, lower in-credit rates or post graduation support. Chose an account that meets your financial needs. Think about: • How near your campus is the bank branch? • How much overdraft can you have and what rate are you charged on it? • What are the fees and charges if you go over your overdraft limit? How soon after graduation do you have to pay the overdraft back and what are the charges if you can’t do it in this timeframe? Name of account Gimmick Overdraft facilities Fees and charges for exceeding overdraft Credit interest Bank of Scotland Student Account Discounts on AA breakdown and Cardcare cover Up to £3,000 by end £28 per month 0.1% LTSB Student Account Free Mobile Banking Pack including text alerts and mobile banking, free NUS Extra card, YHA membership, 40 free music downloads from eMusic and free LAVA Mini Speaker Up to £2,000 by end £15 per month 0.1% Santander Student Current Account Mobile phone, gadget and laptop insurance for up to 3 years when £500 paid each term and devices registered Up to £2,000 by end £25 per month 1.98% 3. Do open a savings account Credit interest on student current accounts is minimal, so it’s worth opening up a savings account as well. Whilst most students won’t save very much or for very long, savings accounts do have better interest rates than current accounts, so for students who have some savings or don’t need to spend their loan all at once it’s worth having a separate account. 4. Don’t be lured by store cards offering discounts Store cards can be tempting for cash strapped students, with many shops offering discounts on your purchases when you open an account with them. Be warned, store cards have much higher interest rates and if you don’t pay the balance off in full straight away the money you saved with the introductory discount will soon be eroded. Making multiple credit applications can also negatively affect your credit profile, something which may be regretted post university when it comes to making credit applications for mortgages or loans to buy the essential car for getting to that new job. Don’t forget: always set up a direct debit to meet the minimum payment on your credit card so if you’re not used to using it you won’t forget to pay it and then be charged. £100 spent on new clothes: Name of card Amount spent on card Minimum payment APR Time to pay off/total repaid Miss Selfridge £85 4%, £4 minimum 29.9% 32 months, £122 New Look £80 4%, £4 minimum 28.9% 29 months, £110 Sainsbury’s Credit Card £100 4%, £4 minimum 15.9% 29 months, £109 Cash £100 - - 0 months, £100 *In this instance, we have applied the same monthly repayment to Sainsbury’s as is required by Store cards 5. Do consider getting a credit card for occasional and emergency use Just as much as store cards should be generally avoided, having a single credit card which you use very occasionally could actually be helpful for some students. Having a credit card and demonstrating that you can manage credit can help to positively affect your credit rating, which might make it easier, and ultimately cheaper, to be accepted for credit cards and mortgages in those post graduation years. 6. Don’t go over your overdraft limit without authorisation For most students their loan is their predominant income, meaning that the end of terms often marks the stage where they are nearest their overdraft limit on their current account. As with all accounts, students who think they’re going to exceed their authorised overdraft limit should talk to their bank first and ask to extend it. Using an unauthorised overdraft can be costly, both in terms of interest rate and charges from the banks for both paid and unpaid items which are outside your agreed limit. Name of account Unauthorised overdraft fees and charges Cost of going £100 into unauthorised overdraft for one month Bank of Scotland Student Additions 24.2% EAR, £28 fee £29.82 LTSB Student Account 8.2% EAR, £15 fee £15.66 Santander Student Current Account 28.7% EAR, £25 fee £27.39 -Ends- Notes to editors: Rates and figures correct as at 12 Aug 2010. For further information: Press Office Zoe.stevens@confused.com 02920 434393 About confused.com Confused.com is one of the UK’s biggest and most popular price comparison services. Launched in 2002, it generates over one million quotes per month. It has expanded its range of comparison products over the last couple of years to include home insurance, travel insurance, pet insurance, van insurance, motorbike insurance, breakdown cover and energy, as well as financial services products including credit cards, loans, mortgages and life insurance. Confused.com is not a supplier, insurance company or broker. It provides a free, objective and unbiased comparison service. By using cutting-edge technology, it has developed a series of intelligent web-based solutions that evaluate a number of risk factors to help customers with their decision-making, subsequently finding them great deals on a wide-range of insurance products, financial services, utilities and more. Confused.com’s service is based on the most up-to-date information provided by UK suppliers and industry regulators. Confused.com is owned by the Admiral Group plc. Admiral listed on the London Stock Exchange in September 2004. Confused.com is regulated by the FSA.