In the excitement of going to university or returning to studies, financial arrangements and particularly the right choice of bank are often overlooked. Yet such a key decision should be taken early on.
Since this is the first academic year that universities have not been restricted on the number of places they award, expect there to be more pressure than usual at bank branches sited on or close to a campus. Advisors will have less time than usual to help.
Instead do research now to find the bank or building society best suited to your expected needs. In most cases a branch close to home should have the time to set up the right account, even though it may not have the specialists that are trained to answer all student enquiries.
Most clearing banks are keen to show they are student-friendly and provide not only loan help but gifts to attract this key new custom. A high proportion of students stay faithful to their bank for the rest of their lives.
Start by preparing a detailed budget which should include as many sources of funding as possible. Some universities are offering bursaries, fee discounts and even personal equipment, such as iPads.
However, such money is not likely to go far in relation to the major expenditure. Over three years, expect to pay around £27,000 in tuition fees and £20,000 plus for living expenses (and considerably more in the London area). Travel costs should also be factored in.
Loans up to £9,000pa for full-time students are available. This can be topped up by £8,009 for maintenance in London or £5,740 elsewhere, paid at termly intervals.
Grants up to £3,387 are available. This sum is for when household income falls below £25,000 but lower grants are given up to a maximum parental income of £42,620.
Parents generally appear to have unrealistic views of student costs. According to the Association of Investment Companies, parents expect youngsters to leave college with under £18,000 debt but the figure is likely to be almost £44,000. Student loans are not repaid until earnings exceed £21,000 and then at a rate of nine per cent. The higher the salary, the more you repay monthly with the loan written off after 30 years regardless of whether any has been repaid. Incidentally the loan is not entered on your credit file.
The crucial element in choosing your college bank or building society is their loan help during the time you are studying.
When any large sum is received, transfer it to an easy access account where at least some interest will be earned. Excluding bonus accounts, the best current rate is 1.65 per cent (Freedom Savings Account with RCI Bank, which is a Renault subsidiary), followed by 1.55 per cent (HiSave SuperSaver with ICICI Bank).
For day to day needs, opt for the largest interest-free overdraft on offer rather than any gift. Such facilities are flexible and the sums advertised are not automatic. Different factors are taken into account. Therefore do not assume the maximum will be made available. Instead enquire as to the sums likely to be offered.
HSBC, the UK’s largest bank with over £109bn capitalisation, and Halifax, part of Bank of Scotland, share the top spot in offering the most generous interest-free overdraft for new students of £3,000 a year. This arrangement runs for the length of the course plus one year, a maximum of six years.
Up to £2,000 annually is available through NatWest and Royal Bank of Scotland – both part of the RBS Group – but perhaps to encourage early monetary care, just £500 is available in the first term, followed by £2,000.
An accelerating scheme is available through Barclays: £500 initially, £1,000 in the second term and £1,500 in the third term. In the second to fifth years, it offers £2,000. Lloyds permits £1,500 in each of the first three years, followed by £2,000 limit. Both TSB and Spanish-owned Santander have a free overdraft facility of £1,500 but the latter raises this to £2,000 if the course goes into a fifth year.
Be careful not to slip into an unauthorised overdraft as the rates can be penal. If this looks likely, immediately seek a permitted facility where the charge will be far lower. None is possible with NatWest and RBS.
Halifax allows a “planned” overdraft (which is beyond the usual interest-free one in the student package) up to £1,200 with no charge but if this is exceeded, 24.2 per cent EAR (equivalent annual rate) will be debited on the whole sum.
Look also at how banks permit a ‘buffer’ zone, if any. This is the small sum by which your account may go into technical debit whilst perhaps a cheque is awaiting clearance.
The interest available could also be a factor in selecting an account.
TSB pays five per cent but restricts this to the first £500 whilst Santander’s rates vary: one per cent on £100 plus, two per cent from £200 and three per cent on £300-2,000; all are conditional on certain credits being deposited each term.
If an overdraft is not required, then look at the gifts on offer to new account holders. Provided the student is aged 16-25 years, Santander gives a Railcard, worth £100, which can run for four years. It reduces the cost of tickets by one-third. A four year National Express coach card – usually £25 – is free from both NatWest and RBS, giving not only a third of travel costs but other reductions.
A £60 Amazon gift voucher is offered by HSBC whilst Lloyds presents a three year National Union of Students ‘Extra’ card, valued at £32, which brings discounts at shops and service price reductions, which includes Superdrug, Italian restaurant chain Zizzi and Odeon cinemas.
Try using a helpful online planner. The Money Advice Service offers one of the best. The NatWest Student Living Index might be initially useful. Its research shows weekly expenditure averages £9 on travel, £11 on alcohol, £12 on utilities and £24 on groceries.
One of the plus points about student life is that there is no liability to council tax. If staying in a hall of residence, the exemption is automatic but for other accommodation it is necessary to apply to the local authority. Even if another resident is not a student, a 25 per cent reduction will be given.
If using a television, a licence is required (£145.50) but remember to claim for any unused months, probably at the end of the academic year. If viewing on catchup, such as BBC iPlayer, no licence is needed.