Money tips for students going to university 27 August 2010
Alex Higgs (about the author)

The exam results are in 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 various tips, financial matters now and in the future will be a lot easier.

Opening a bank account

Do open a bank account well in advance of going to university or higher education. 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 while 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.

They come 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 and so on. 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 and grandparents to give students "a little something" without it being an easily lost or stolen traditional wodge of cash.

However, as Steven Jackson of beatmydebt.com warnes, pre paid cards come at a cost. "The costs of running a pre-paid card can be high so it is important to shop around and read the small print before signing up. Opening a basic bank account without an overdraft facility would be a cheaper option" he said.

Banking Gimmicks

Do not be lured by gimmicks which come free with the account.

Anything that comes free with the account as an incentive is being funded from somewhere, whether it is through higher fees and charges, lower in-credit rates or post-graduation support.

Chose an account that meets your financial needs and consider:

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 cannot do it in this timeframe?
Some gimmicks include free music downloads or laptop insurance.

Do open a savings account.

Credit interest on student current accounts is minimal, so it is worth opening up a savings account as well.

Steven Jackson believes that a savings account is a vital tool for students. "Normally students will receive the money they need for the entire term all in one go. They need to budget their expenditure so that this last for the full 10-11 weeks and is not spent all in one go".

"Putting the lump sum in a savings account and then transfering a weekly or monthly allowance into a current account for daily use can be a very good way of making sure there is still money left to live on in the final weeks of the term" he said.

While most students will not 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 do not need to spend their loan all at once, it is worth having a separate account.

Avoid store cards

Students should not 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.

Steven Jackson believes that store cards should be a no no for students. "Most students will owe around £25,000 when they leave university. Sticking to a monthly expenses budget and avoiding using credit facilities such as credit cards and store cards will help to considerably reduce this burden" he said.

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.

Do not forget: always set up a direct debit to meet the minimum payment on your credit card, so if you are not used to using it, you will not forget to pay it and then be charged.

Overdrafts

For most students, their loan is their predominant income, meaning that the end of terms often mark the stage where they are nearest their overdraft limit on their current account.

As with all accounts, students who think they are 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.

The cost of going £100 into an unauthorised overdraft for one month with a High Street bank can be up to £30.

Steven Jackson agrees that an overdraft is the norm for student banking but gives a word of caution about repaying the debt after graduation. "It is very important to understand the repayment terms of a studen overdraft facility. Many banks require such facilities to be repaid quickly after or the borrower will incur significant costs" he warned.