Choosing right bank can be an education

Yet far too many students sign up to a bank without checking if it offers the best deal for them. Freebies sound appealing, particularly in the euphoria of freshers' week, but rather more important hard-nosed considerations should sway their decision.

Before going off to college, take time to consider:

n overdraft facility, both free and authorised rate;

n credit interest;

n range, price and quality of non-current account products;

n proximity of branch and specialist staff.

The average student is likely to graduate this year with a staggeringly high debt of 21,198 which shows how important it is to manage funds as carefully as possible.

The highest interest-free overdraft is 3,000 which is available from Halifax. In the first year, Barclays are next best with 2,000, then Lloyds TSB with 1,500, Co-op with 1,400 and five with 1,000: HSBC, NatWest, Royal Bank of Scotland, Santander and Smile (the internet bank of Co-op Financial Services).

Clydesdale and Yorkshire, both part of National Australia Bank which has almost 11 million customers, has no such facility on their student accounts.

Most banks increase the amount that can be drawn upon interest-free in second and subsequent years, such as 1,000 in first year, 1,400 in second, 1,800 in third and 2,000 in fourth with Smile.

If this facility may not prove adequate, the Student Loans Company should be the next avenue.

But last year it admitted to losing documents and to having a faulty online application system. Last September only one telephone call in 20 from parents and students was answered and by December around 3,000 students had still not received their funding.

Therefore apply as early as possible and make emergency plans in case promised funding from the Students Loans Co does not arrive by the expected date. Also watch your current account carefully.

If a student needs to go beyond the loan amount, do not go overdrawn without permission.

There is no charge for an authorised overdraft with NatWest or RBS but rates elsewhere can quickly mount up: 7.2 per cent (Halifax), 7.49 per cent (Clydesdale, Yorkshire), 8.2 per cent (Lloyds TSB), 8.9 per cent (Barclays), 9.9 per cent (Co-op, Santander, Smile).

The lowest rated is currently three per cent above base (HSBC) which means 3.5 per cent.

Unauthorised overdrafts attract penal charges. Even going overdrawn without permission for a few days can incur the bankers' wrath.

There may be fees (28 at Halifax, 25 at Clydesdale, HSBC, Santander, Yorkshire, 22 at Barclays, 20 at RBS, 15 at Lloyds TSB) which can be per unpaid item (5 NatWest and 30 Co-op and Smile for unpaid items).

In addition, interest charges can be imposed: 29.99 per cent (Clydesdale, Yorkshire), 28.7 per cent (Santander), 24.2 per cent (Halifax), 17.81 per cent (RBS), 16.5 per cent (NatWest), 15.9 per cent (Co-op, Smile). Just a few are more modest: 3.6 per cent (HSBC), 8.2 per cent (Lloyds TSB). Barclays has a nil rate.

Relative few students are able to maintain much credit in their current account. Just seven banks pay interest, which is still negligible: 1.98 per cent (HSBC for first year and Santander), 1.02 per cent (RBS), 0.12 per cent (Smile) and just 0.10 per cent (Halifax, Lloyds TSB, NatWest).

Instead any money in hand would be best placed with a non-student easy access account at the Post Office at 2.75 per cent (including 1.25 per cent bonus for first year) by internet or Santander paying 2.50 per cent (including 1.5 per cent bonus for 12 months).

Clearly planning pre-college is vital. Parents can certainly help.

The Association of Investment Companies has calculated that if just 50 had been saved through the average investment trust over the last 18 years, the pot would now be worth 20,371. Over 21 years, it would have grown to 28,318.

The value of freebies is low by comparison with interest-free overdrafts but can certainly be useful.

The best is probably the free five-year Railcard offered by NatWest, which is worth 130 and renewed by the bank annually provided the account is active.

Breakdown cover is offered by Halifax, which is one of the reasons why Richard Beecham chose it for his student account in July 2008. Now entering his third and final year at Leeds College of Music, 23-year-old Mr Beecham also "wanted the security of an interest-free 3,000 overdraft" although he has not used it fully.

He banks online and uses a debit card. He has also used the Halifax commission-free facility for foreign currency and travellers' cheques when visiting Kos in Greece and the US.

Several banks offer financial products to students at low or nil charge. Both Clydesdale and Yorkshire provide commission-free travellers' cheques and currency and HSBC provides free travel insurance.

Free insurance for a mobile telephone, gadget and laptop – worth 240 annually – comes complementary with a Santander student current account. YHA membership (with discounts at 4,000 hostels worldwide) and free music downloads are given by Lloyds TSB whilst there are discounts on laptops through Barclays, NatWest and RBS.

Broadband offers are available through Barclays and NatWest.

One of the facilities that students should come to appreciate is free mobile banking with text alerts, not only if the credit limit is getting close but every time a debit card is used abroad.

Managing money is vital to students and rarely taught in school.

The first step into adulthood, often away from home, means that the banker should become a close friend. A branch on or close to campus and with specially trained staff is worth a great deal.