If you’re thinking of opening a new bank account, read our guide before you choose one!
Don’t just be tempted by the best freebies or the size of the fee-free overdraft; whilst these can be a welcome bonus, there are more important factors to consider, to help you to manage your money conveniently and cost-effectively.
If you are off to university or college, you will probably want to open a Student Bank Account, which offers various benefits such as an interest-free overdraft facility. Once you have completed your studies, you should look at Graduate or Young Person’s Accounts, to take advantage of preferential terms. Or perhaps your financial situation has changed, or you are just dissatisfied with the service provided by your current bank.
Whatever your reasons for opening a new account, read our guide of points to watch, things to consider and features to compare, to help you choose the bank and type of account that’s right for you, during student life and beyond.
How to start & points to watch
Things to Consider
Understand the differences between accounts & how to choose one to suit your financial situation
How to switch from an existing account
While many of us bank with the Big Four – Barclays, Halifax/Lloyds, HSBC, RBS/NatWest, there’s a huge choice beyond this e.g. First Direct, Santander, Nationwide, Metro Bank, Monzo…
Banks and building societies offer a range of current accounts with different deals and benefits: think about your personal financial situation, what you most need from a bank account, and how you plan to use it.
Arrange to talk to an adviser and allow plenty of time.
Banks recognise this is new territory for many young people – don’t be afraid to ask questions and do query anything you don’t understand.
Be aware of banks’ sales culture. Don’t feel pressurised into making an instant decision. Take time to think things over, shop around and compare options from several institutions.
Make sure you understand the terms and conditions of an account before you commit e.g. if you are offered an interest-free overdraft, check how long it would remain interest-free, when the overdraft limit might be reduced, what rates and charges apply if you go over your limit etc.
Things to Consider
What Do You Need From an Account?
Explain your personal situation in terms of employment, debts, spending, savings etc. A bank should match the product to your individual needs.
If you are overdrawn on your existing student account
Look for a bank that offers a large interest-free overdraft for the longest period, to help you clear your debts. But be aware of the consequences of exceeding the arranged overdraft limit!
Aim to gradually reduce your overdraft, so that you clear it before interest charges and fees apply.
If you are earning and likely to remain in credit
Look for an account that pays high interest. That might mean opting for a basic current account rather than a Graduate one. But beware that going overdrawn on this sort of account will usually cost you more.
If you are earning enough to save regularly
Rather than leaving your money in a current account, you could probably earn more interest by opening a savings account.
Standard or Packaged Account
Most current accounts are available as a standard or ‘packaged’ account, which offers extra features – usually for a fee; you pay a monthly charge for benefits such as car breakdown cover and insurance e.g. mobile phone and travel.
Compare packaged accounts to the standard no-frills ones. Price up the benefits you need, and check whether it would be cheaper to opt for a standard account, buying the extras as and when required, and whether you could get them cheaper elsewhere.
Fees & Charges
What are the fees involved?
Look out for high charges on overdrafts and other services.
For borrowing money:
Do they offer interest-free overdrafts or preferential interest rates on loans?
For bank accounts in credit and for savings:
If your account is normally in credit, or you can start saving, look for higher interest rates to help maximise your earnings.
Find out more:
Many banks offer cash incentives or competitive introductory interest rates to attract new customers; but do look beyond any short-term deal, to check that the account would still be the right one for you once the offer ends.
Service & Access
How does the bank treat students/graduates/young people?
Were they helpful in answering your questions and finding a product to meet your particular needs?
How do you want to deal with your bank?
- If you prefer personal contact through a branch, look for a bank with good High Street presence. Do they offer a personal banking service, with dedicated advisers who get to know their clients?
- If personal contact isn’t a priority, you might prefer the convenience of mobile banking and internet-only accounts, which often offer the best rates.
How easy is it to access your account?
- Make sure there’s a local cashpoint machine that you can use free of charge, to avoid cash withdrawal charges.
- How does the their mobile banking measure up – via app, web or phone? What banking features do they offer e.g. budgeting facilities?
What if You Change Your Mind about an Account?
- Ask if there’s a cooling off period.
- Check how you get out of it – are there penalties for switching accounts?
- Can you downgrade from a packaged account to a standard one, or cancel add-ons if your circumstances change e.g. you sell your car and no longer want breakdown cover, or you lose your job and need to reduce expenditure? What are your options?
Find out more:
Once you know the key criteria you want from an account, explore various options from different institutions. Comparison sites are a good starting point: search the top Graduate Accounts, the best in-credit or for overdrafts, or packaged accounts etc.
Compare Graduate Accounts
Specifically designed to help you gradually reduce student debt and take control of your finances, by offering preferential terms such as interest-free overdrafts.
Find out More
Graduate Accounts – Which?
Graduate accounts ranked in order of the maximum free overdraft they allow
Compare Standard Current Accounts
Compare Student Accounts
Look at the ‘Things to Consider‘ above for general pointers on choosing your student account.
Most students decide where to bank while at university based on what incentives are on offer, or based on the size of the fee-free overdraft. While that’s better than basing your decision on who you’ve banked with all your life – because the first rule of personal finance is that loyalty rarely pays – there is one other crucial thing to factor in: what happens if you go over your overdraft?
If you accidentally spend more than the amount arranged with your bank, which is easily done, financial penalties may be incurred. We’ve looked at the fees charged by eight banks offering student accounts, and found that only three of them won’t charge students for this.
Switching Bank Accounts
Banks used to work on inertia – the fact that once you were in, you were unlikely to change banks because of the hassle involved. But thanks to a change in banking laws, you can switch quickly and easily (within 7 days), using a bank’s switching service. As a result, financial institutions are becoming more competitive, so if you’re not happy with your bank, be proactive and look around for better deals and service.
Find out more:
The Current Account Switch Service
How it works; most UK banks & building societies are signed up to the service, so the process will be the same wherever you switch