Cheapest borrowing option key for students

Interest free borrowing is the option this year’s new students should take if they want to stay top of the form on their finances, says Andrew Hagger of data comparison site Moneynet.co.uk.

“As usual the banks are offering a veritable feast of cash incentives and freebies in an effort to win over the new intake of students in 2008,” says Hagger.

“And this year, more of them are resorting to the ‘interest on credit balances’ hook to help secure themselves a slice of this potentially lucrative market.

“But whilst a cash reward for staying in the black may sound like a generous offer, the reality is that unless you are the kind of student who will maintain a large credit balance on your current account, it’s hardly worth the bother.”

To illustrate the point, those keeping an average credit balance on their current account of £300 over a full year - an unlikely feat for many students - would receive just £18 (before tax) at a rate of 6%, £12 at 4% or £6 at 2%.

“The crucial element of a student bank account for the majority will be the ability to borrow funds as cheaply as possible,” says Hagger. “So whilst incentives like £50 in cash or a dozen cinema tickets may sound tempting, the reality of the sums puts this sweetner into perspective.

“Borrowing an additional £1,000 interest free would save £80 per year compared to a student bank account that was to charge interest at a rate of 8% for authorised borrowing.

“So if you’ve done your sums and you’re likely to need to borrow £1,500 plus from year one, then Halifax and RBS have the best deal for you.”

However, there are some incentives of offer which are definitely worth considering

For those who are not reliant on a huge interest free overdraft to help get themselves through university and who will be using the train to get to and from college, the student account from NatWest which comes with a 5 year young person’s railcard worth £120 is well worth a look.

“Most important of all of course is keeping tabs on your balance,” says Hagger.

“Drifting into unauthorised overdraft territory can result in being hit with crippling interest rates as high as 29.84% from RBS, 28.7% from Abbey and 27.5% with Barclays.”

Moneynet.co.uk top tips for students

Budgeting is crucial - work out roughly what you’re going to spend each month and try to stick to it. Don’t get carried away and blow all your money in Freshers’ Week. If you find you’re struggling with your finances, speak to the student adviser at your bank – don’t bury your head in the sand as the problem won’t go away and worrying about money could have a negative impact your studies.

Don’t forget to take out insurance - today’s student will be armed with a host of electrical goodies such as ipods, laptops and digital cameras – make sure you sign up for specialist student cover before you head off for uni.

Get a TV licence or get a fine – watching TV in the halls of residence is OK, but if you have a TV in your own room, don’t forget to get a licence or you could be hit with a fine of up to £1,000. You don’t have to pay it all in one go, for how to pay by monthly installments check out tvlicensing.co.uk/waystopay/index.jsp

Take care when sharing a house – if your name is listed as the person paying the bill, it will be your responsibility to pay, even if you are let down by one of your housemates. This could have a serious impact on your credit rating, so make sure you can trust your friends to pay their way.