Learn the basics of student finance

Staying on top of spending is key to a healthy bank balance at university, but if you really want to keep your finances in shape and save money, a good place to start is the account itself. Here, Times Money runs through the student finance basics, from current accounts and credit cards to loans and bursaries.

Student bank accounts

The chances are that you will be with the bank you use as a student for at least three years, if not the rest of your life, so give yourself time to think carefully before signing up.

David Malcolm, finance officer for the National Union of Students, suggests looking at the details, which could make a big difference. An interest-free overdraft will come as standard, but ask how much you will be charged if you go over your limit. Mr Malcolm says: “Also think about logistics: are there branches nearby and how much support is there for students in those branches?”

Halifax is offering the biggest free overdraft this year, at £2,750 from the first year. That figure is set for the full three years, rather than increasing gradually, as with most other student overdrafts. However, this is an “up to” figure, so not everyone will be eligible for the full amount. NatWest gives students a five-year Young Persons Railcard, which cuts train fares by up to a third. The free overdraft starts at £1,250, rising to £1,600 in your third year. Lloyds TSB, meanwhile, has a £1,500 free overdraft and promises £75 cash back after your first year, but only to those who manage the impossible and stay in credit.

Mr Malcolm adds: “The trick is to look beyond the gimmicks. Something useful, such as the railcard, will always be popular because, though inexpensive, you can save a lot more money over the course of five years.”

Most banks allow graduates a bit of time to pay back their student overdrafts interest-free. HSBC has reversed its decision to end free overdrafts for graduates, but others, such as Halifax, allow only a year to repay the free overdraft before charging you interest.

Credit cards

You are likely to be offered a credit card, or sent one automatically, when you open a student bank account, but remember that these cards must be handled with extreme caution.

Halifax and NatWest, for example, add student credit cards to their current account packages and charge interest of 17.9 per cent and 18.9 per cent respectively. Blow £500 on the NatWest card and, sticking to the minimum monthly repayment of 2.25 per cent, you will be paying it off for 14 years at a total cost of £1,104.20.

Lisa Taylor, of Moneyfacts, the financial website, says that credit cards should be used only in emergencies, adding: “It is easy to get caught out. The interest adds up quickly and paying off the balance is hard if you are not earning.”

It is likely that your card will be designed specifically for students. The Barclays Student credit card has the lowest rate, at 14.9 per cent, and includes delivery protection for online purchases, free text reminders of payment dates and fraud protection.

If you have already racked up credit card debts, perhaps on a gap year, it may be worth consolidating the debt with a 0 per cent balance transfer. The Virgin Money MasterCard charges 0 per cent on balance transfers for 15 months, but remember that the rate then rises to 15.9 per cent. For large purchases, such as a laptop computer, you could use the Purchase Card from Halifax, which offers 0 per cent on purchases for 15 months. After that, however, the balance is charged at 14.9 per cent.

As with all credit cards, if you clear the balance by the end of the month, rather than sticking to the minimum payment, you will avoid paying any interest at all.

Loans

Student loans are designed to cover tuition fees and help with living costs. Interest is charged at the rate of inflation. The maximum loan amounts are £3,070 a year for tuition fees and £6,315 a year for maintenance.

New students from low-income households – with income, after allowances, of less than £38,330 – are eligible for a nonrepayable maintenance grant of up to £2,765 a year. Information on funding is online at www.studentsupportdirect.co.uk and you can apply for grants and loans at www.direct.gov.uk .

This year’s deadline for loan and grant applications was June 29, but late applications are accepted until nine months after your course’s start date. Latecomers may receive their first instalment after the start of term, which can make for tough budgeting.

You must start to repay the loans once you are earning more than £15,000 a year. Repayments are 9 per cent of income above this and are deducted from your salary. The self-employed make repayments directly to the Student Loans Company.

Bursaries

There is more financial support available than you probably realise. A survey by the Department for Education and Skills (DfES) this year found that two thirds of students did not realise that their university could offer nonrepayable bursaries from £305 to £1,000.

Next month the Government is starting a campaign to let students know what is available. Your first stop should be the Bursary Aware map at www.bursarymap.direct.gov.uk, which gives details of all bursaries available from universities and higher education institutions in England.

Jenna Khalfan, of the NUS, says: “There are different pockets of money available and students often miss out because it is not made clear. It can be an easily missed tick-box on a form that is the difference between getting a bursary or not.”

Universities that charge full tuition fees of £3,070 have to offer bursaries of at least £305, though many offer more to students from households with income of less than £17,900. From next year, this threshold will rise to £25,000.

The Aim Higher website at www.aimhigher.ac.uk has a list of the different sources of financial support. These include the Access to Learning fund and specific funds to help the disabled and students with children.

Don’t dismiss savings opportunities

Student savings may sound like an oxymoron, but if you can put away a little, it will prove invaluable if you are hit with unexpected expenses.

A tax-free instant-access Isa from National Counties Building Society can be opened with as little as £1 and pays a market-leading 6.26 per cent.

If you are not working and need not worry about tax on your savings, a standard online savings account will work just as well as an Isa. Sainsbury’s Bank’s Internet Saver pays 6.25 per cent.

Sue Hannums, of AWD Chase de Vere, the independent financial adviser, suggests putting a chunk of your student loan in a savings account. “You can drip-feed money into your student account and earn interest on the rest,” she says.

CASE STUDY

Anna Griffiths, 22, is starting her third year studying psychology at Roehampton University, London. She has a student account with Halifax, with a free overdraft of £2,750.

Miss Griffiths, left, has a student credit card with Halifax, which she leaves at home. “It is useful to have one,” she says, “but I don’t trust myself to carry it around with me.”

She also has a web-saver savings account with Halifax, where she keeps the cash she saved while working over the summer.

Her advice to new students is to set a weekly budget and put aside money for the household bills, adding: “It is hard to stick to, but it’s easy to run out of money if you do not.”