The five 'Dos' and 'Don’ts' of student finance

Results day has been and gone and the annual scramble for banks to win a new batch of undergraduate business has begun. With only 6 per cent of UK customers switching their current accounts each year*, banks are well aware that, if they sign up a young adult, there’s every chance they are signed up for life.

So for students, financial decisions made too quickly could have financial ramifications well into the future. By sticking to these Dos and Don'ts, you should be able to take the pain out of student finance and you may t even find yourself saving a lot of money.

1.       Don’t be lured by gimmicks

When choosing a current account, it’s easy to be drawn in by fancy add-ons, some of which you might find cheaper elsewhere - such as home insurance, for example. So make sure you consider other important things, such as:

• The location of your campus to  the bank branch
• The overdraft  limit and  the rate you are charged on it
• The fees and charges if you go over your overdraft limit and how soon after graduation you have to pay the overdraft back and the charges if you can’t do it in this timeframe. 

2.       Do open a savings account

Credit interest on student current accounts is minimal, so it’s worth opening up a savings account as well. Whilst most students won’t 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 don’t need to spend their loan all at once it’s worth having a separate account.

If you can, set up a direct debit on the day of your student loan and siphon off a set amount that you promise yourself you won’t touch. This should help you budget and should mean you see your money grow by the time you need to access it.

3.       Don’t 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 high 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.

Making multiple credit applications can also negatively affect your credit profile, something which may be regretted post-university when it comes to making applications for mortgages or loans.

Don’t forget: always set up a direct debit to meet at least the minimum payment on your store card so if you’re not used to using it you won’t forget to pay it and then be charged.

Here’s a brief comparison of a selection of major high street store cards:

 **In this instance, we have applied the same monthly repayment to Sainsbury’s as is required by store cards

4.       Do consider getting a credit card for occasional and emergency use

Just as much as store cards should be generally avoided, having a single credit card which you use very occasionally could be helpful for some students.

Having a credit card and demonstrating that you can manage credit can positively affect your credit rating, which might make it easier and ultimately cheaper to be accepted for credit cards and mortgages in post graduation years.

5.       Don’t go over your overdraft limit without authorisation

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

As with all accounts, students who think they’re 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 outside your agreed limit. Here is a breakdown of some harsher penalties you could end up paying:

For more top tips on all things student related, see our guide to student borrowing and our top household money-saving tips for students.

All rates and figures correct as at 24 Aug 2010

*According to research from Defaqto published 4 May 2010

We all know that feeling when a week before payday you're already out of cash, and often it's the little things that add up and sting us. With our cost calculator tool you can get an idea of how much you might be spending on bits and bobs.