Undergraduates must study bank deals

With the ink barely dry on last week's Highers results, many students will soon be making their university arrangements for the autumn.

One area that you'll need to consider is which bank account to choose as you prepare for life at college.

Even though we're barely crawling out of recession, the banks are hungry for a slice of the student banking market. After all, today's students are potentially tomorrow's big earners and the banks want to secure their loyalty for more lucrative investment, pension and mortgage business in later life. The big high street providers are all offering a wide array of incentives and freebies in an effort to win the custom of the new intake of 2010.

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The crucial element of a student bank account for the majority will be the ability to borrow as much money as possible as cheaply as possible. So while some free music downloads or a discount off a laptop may sound tempting, the following calculation should convince you otherwise.

Being able to borrow an additional 1,000 interest free would save you 99 every year compared with a student bank account that was to charge you interest at a rate of 9.9 per cent for authorised borrowing. If you've done your sums and you think you'll need to borrow 1,500 or more from year one, then Bank of Scotland or Barclays should be your first port of call. Bank of Scotland will lend you up to 3,000 interest free and Barclays up to 2,000. Be careful not to exceed these limits as you'll end up paying additional unauthorised borrowing costs that you can ill afford on a tight budget.

It's also wise to avoid a student credit card. If you must have one, make sure it's only used for emergencies. Don't use it as an extension to your overdraft because unless you've got the cash to clear the account in full, your measly budget will be squeezed even further.

• Andrew Hagger is head of communications at Moneynet


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