Student Bank Accounts 2012/13 Grab up to £3,000, interest-free

0% overdrafts, freebies including cash - big banks love enticing new students with goodies. Don't just take the first, though. This is a 2012/13 guide to bagging the most, whether you're a new student or you're already there.

The five BIG facts

Go for the biggest 0% overdraft deal possible

Most students will need an overdraft, so make sure you're not getting charged for it. Aim to get the biggest guaranteed amount that lasts as long as possible.

Be wary of banks offering bigger overdrafts than our top picks - some give 'guaranteed' amounts, others 'up to' amounts - so ensure you're comparing like with like. However, you must ask for the extensions each year, even on guaranteed limits - they're not applied automatically. NEVER go beyond your 0% limit or you'll face nightmare bank charges. If you're desperate, get the bank's permission to extend your limit.

Never go over your overdraft limit

This isn't a rule just for students, it's a rule for life. The game changes totally if you go beyond your overdraft limit - charges shoot up and you can be caught in a vicious cycle that's tough to ever escape from.

If you're struggling, at least talk to the bank. Try to agree an extension but remember, you are likely to be charged interest, up to a huge 24% AER. It's always far better to plan and budget to avoid this.

If not, or if you go over without permission, the charges can be enormous - up to £25 per transaction (so a shopping trip spending £30 in five debit card transactions could see you facing £125 of charges!) - beware! More info in Bank Charges Compared.

Beware, you will be credit scored

When you apply for any debt product, including a bank account with an overdraft, the lender will credit score you. This is to decide how desirable a customer you are based on behavioural predictions from all your prior financial data.

As a student, it's likely there will be very little data on you, which makes credit scoring very difficult. Sadly this can leave some students rejected due to ridiculous anomalies, and there may be no rhyme, reason or solution to this. Read the Credit Scoring guide.

DON'T base your choice on the closest branch or ATM

Just because there happens to be a particular bank on the campus you'll be going to, or a conveniently located cashpoint nearby, DOES NOT mean you should choose an account with them.

You can withdraw cash free of charge from any bank's ATM and almost every bank gives online access. Branch location has little relevance for able-bodied students. To compare, examine what's on offer and go for the best deal.

After graduating, switch to a top graduate account

You'll be pleased to know that for at least a year after finishing your course, you're still eligible for preferential terms, including 0% interest overdrafts, allowing you to gradually pay off the debt.

Switch to the Top Graduate Account to continue getting the benefits.

Student accounts: The basics

• What is a student account?

  Student accounts are bank accounts made for those in higher education. They let you pay money in and out, and offer additional benefits such as an interest-free overdraft.

• You'll get a debit card, which allows you to pay for things in shops and online without the need to withdraw cash. Read Who Counts As A Student? for further details on who is eligible to open a student account.

• What is an overdraft?

  An overdraft facility allows you to spend more money than you have in your account, up to a certain limit. Student accounts provide a set level of overdraft interest-free for the duration of your course.

  Remember the bank is just lending you this money. It will need to be paid back, so don't get too comfortable. Always keep in your mind that's it's not actually yours, it's the bank's.

• It costs nowt... UNLESS you exceed your overdraft

  The cost of banking is measured in terms of interest rates and fees. Interest is the cost of borrowing money (or the reward for saving it). So 5% interest on savings means you earn £5 per £100 per year on the cash.

  All of our top pick accounts provide an agreed interest-free overdraft limit, and anything up to that will not be subject to fees or interest - good news.

  However, this is all provided you stay within your overdraft limit. Exceed it and doing so can cost up to £25 per transaction plus interest on top.

Best buys: Top student accounts 2012-13

The high street banks compete in a red-hot battle, publishing ever bigger overdraft limits, then sneakily not allowing all students to have them. The key is whether the overdraft is 'guaranteed' or 'up to' - the latter means it's just a reported maximum. All accounts require you to pass a credit score.

The Co-op Bank - £2,000 0% overdraftHighest GUARANTEED limits, plus good customer service

• In-credit interest: None
• Arranged overdraft cost: 9.9% EAR.
• Unarranged overdraft fees: 18.9% EAR plus £15 unpaid item fee (max £150 per quarter).
• 0% overdraft: Year one: £1,400 Year two: £1,700 Year three: £2,000

The highest guaranteed overdraft limit comes from the ethical Co-operative Bank. Successful applicants are allowed a £1,400 0% overdraft in year one, £1,700 in the second year and £2,000 in the third (as long as you pay in your student loans, and don't incur charges). To get the increases, you must ask at the beginning of each year.

Biggest GUARANTEED 0% overdraft

Any agreed borrowing over the limit costs a reasonable 9.9% APR. But if not agreed, the rate jumps to 18.9% plus big charges on top, so don't do it. If you apply for this, please let us know your experiences and any problems getting the full overdraft limit: Co-op feedback.

The Co-op doesn't have an official graduate account, but you can keep the student 0% overdraft for a year after graduation - though other graduate accounts are likely to beat it.

2nd

Customer services poll (in credit and overdrawn)
Great		74%
OK		19%
Poor		7%
Date: Feb 2012 | Voters: 478

Customer service feedback

In our February 2012 poll of the top nine banks, Co-op came second with a big 74% of customers who voted saying they got great service. The Co-op has consistently come second in our customer service polls.

Ethical rating: The Co-op is Ethical Consumer's top pick for its campaigning brand. The score isn't great at 7.5 (out of 20), though, as it's lowered by Co-op's retail arm.

Halifax: Highest 'UP TO' overdraft limits.0% overdraft up to £3,000, though likely you'll get less

• In-credit interest: 0.1% AER
• Arranged overdraft cost: 7.2% EAR.
• Unarranged overdraft fees: 24.2% plus monthly fee of £28 and additional fees up to £20.
• 0% overdraft: All years: £1,000 initially, up to £3,000 (not guaranteed)

The Halifax student account gives overdraft limits of 'up to' £3,000, yet this is NOT guaranteed. Initially, you'll be given £1,000. You must then ask for further increases although the feedback from last year tells us it's not likely to go higher than £1,000 in year one.

Highest potential overdraft limit, but NOT guaranteed

Never EVER go over the interest-free limit or you'll be stung with rates up to 24.2% AER plus a monthly fee of £28, and additional fees up to £20.

Those that want to take a punt on getting a higher limit in the future could try one of these, but feedback from previous years shows very few people got even close to the the limit. If you apply for this, please let us know the size of the overdraft you get: Halifax feedback.

8th

Customer services poll (in credit and overdrawn)
Great		33%
OK		46%
Poor		21%
Date: Feb 2012 | Voters: 715

Customer service feedback

In our February 2012 poll of the top nine banks, Halifax showed a decline from previous votes, with 33% of in-credit customers rating it great (previously 42%). 21% rated it poor, worse than the August 2011 result of 15%.

Ethical rating: Halifax has a fairly low score of 4 out of 20 from Ethical Consumer.

Alternative: HSBC

• In-credit interest: 2% AER
• Arranged overdraft: Can only borrow up to £3k
• Unarranged overdraft fees: return fees of up to £15.
• 0% overdraft: All years: £500 initially, Up to £3,000 (not guaranteed)

The HSBC account also shouts loudly about a maximum interest-free overdraft up to £3,000. You must then ask for further increases yourself. The feedback from last year tells us it's often only up to £1,000 by the end of year one.

If accepted, you'll initially get just £500,. You must then request further increases, but you won't be guaranteed to get the full amount. We welcome your feedback, detailing if you were accepted and the overdraft limit you were offered.

Also, as an added bonus, the account pays 2% interest on the first £1,000 credited, but only in your first year of study.

4th

Customer services poll (in credit and overdrawn)
Great		42%
OK		40%
Poor		18%
Date: Feb 2012 | Voters: 561

Customer service feedback

In our February 2012 poll of the top nine banks, 42% of HBSC customers (down from 45%) voted that the customer service they received in the past six months was great, with 40% voting ok (previously 35%).

Ethical rating. HSBC has a low score of 2.5 out of 20 from Ethical Consumer.

Nine high street banks offer student accounts, each with varying overdraft limits, incentives and terms & conditions.

It's also worth remembering that next year, even better accounts are possible so it's worth checking whether you should switch. All next year's top deals will be in the free weekly email.

Don't need an overdraft? Maybe try stoozing...

For that rare student breed, the ones who are always in-credit, there are very few choices (even if you're occasionally overdrawn, go for the top overdraft deal).

No student accounts pay any significant interest if you're in credit and most top standard accounts require an income over £14,000 to open.

The prime option is get a normal student account, and if you've got any spare cash, dunk it in the top saving accounts. But there is a way to boost even that.

How to stooze your student account

Please don't even read this unless you're an anally-retentive financial superhero. The consequences of getting it wrong can be a real problem and with low savings rates the current returns just aren't that good anyway.

Those always in credit could PROFIT (provided they're financially disciplined) by opting for the account with the biggest and longest lasting interest-free overdraft and using a budgeting technique we call 'current account stoozing' (see the Stoozing guide for a full definition of the word).

Once you get your account, take cash out of it and plop it into a top-paying instant access saving account (see Top Savings and Cash ISA guides) leaving yourself reasonably near, but never over your overdraft limit. Make sure you also manage any changes in limits and leave enough room to do your normal spending.

As a result, you're earning interest on money the bank lends you for free. Done right, this can add around £120 to a student's coffers over the length of a course. Similar tricks are possible with student loans (see the Student MoneySaving article). However, this isn't an excuse for spending or borrowing more. If you're not financially disciplined please DON'T try it.

Do a budget the right way

It's a mantra parents push at their student offspring all the time. "You've got to do a budget young Johnny, it'll all go to hell if you don't, please do it Johnny, please..."

Yet "do a budget" is a meaningless phrase unless you understand your income.

With people who work it's easy:
You shouldn't spend more than you earn.?

But when it comes to those going to university:
Students shouldn't spend more than they... ??

That's the big question that's never specified. Martin has a rule of thumb on it.

Add up student loan + grants + employment earnings + money from family, and that is your income. That's the amount you should try to budget to spend less than.

While 0% overdrafts are very useful and should help with cash-flow issues while you're a student, they're never part of your income. Always remember an overdraft is a LOAN and must be repaid (its rate will jump once you graduate).