Interest free Student overdraft

Last updated: 20th August, 2012

This page contains all of the information you will need about student overdrafts. If you are looking for a comparison of all the student accounts as well as what specific overdrafts they offer you will need to head to the main comparison page of the site.

This year, the interest free overdraft is available for all of the student accounts but obviously the T&Cs differ for each of them.

What is an overdraft

Student OverdraftIf you meet all of the banks T&Cs such as the deposit amounts (your student loan) as well as passing a credit score (check yours for free) you will be able to start using your interest free overdraft.

It is important not to see this as free money but simply a safety net for extra funds whilst you are studying. Usually, banks charge their customers a percentage to use their overdraft facility but as a student you have the ability to apply for an interest free or 0% borrowing overdraft.

*Always be aware of how and when you will have to repay your overdraft.

Tiered student overdrafts

Having a huge overdraft is not for everyone and if you’re wary of the possibility of having so much money at once then do think carefully. Tiered student bank accounts are useful as way of managing your money and will make your money go further. Let’s consider some examples:

In 2012 Natwest, RBS and Lloyds TSB all offer £1,000 over the course of year one, which is tiered so you receive £500 in the first term, £250 in the second term and £250 in the third term. Lloyds then ups this to £1,500 in years two and three and up to £2,000 in years four and five. Natwest offers £1,250 in your second year and goes up in equal installments of £250 up to year five. This will give you a limit of £2,000 in year five.

This tiering can be useful as it helps students manage their money more effectively and prevents overspending.

‘Up to’, but not guaranteed

0% OverdraftAnother thing to be wary of when choosing the best student bank account with the right student overdraft for you is that almost all the banks will say ‘up to’, but not guaranteed. This is important!

For example, Halifax and Bank of Scotland do offer a £3,000 interest-free overdraft but it’s by no means guaranteed. If you want to be sure of securing a certain overdraft amount then there are bank accounts which offer guaranteed overdrafts.

For example, the Co-operative student bank account offers the highest guaranteed overdraft of £1,400 which can be increased to £2,000 over the three years. This is subject to account activity being satisfactory (eg. paying your student loan into your account). However, it is harder to get accepted as a customer of Co-op compared to other banks so only apply if you think your credit rating is good. You can check your credit rating for free here (just remember to cancel the trial once you’ve got it).

Halifax and Bank of Scotland could potentially offer you a larger overdraft of £3,000, again depending on your credit rating. Also Co-op only offers an interest free overdraft for three years where as many other banks offer this for five or more. This is an important point and will be a disadvantage to many students.



Don’t need a student overdraft?

Although rare, if you’re lucky enough to not need an overdraft then look at the rates paid with balances in credit. HSBC offers the highest rate of 2% for balances up to £1,000 (in 1st year only). Most other student accounts are 0% or 0.1% so if you don’t think your going to use your overdraft then opt for a student bank account with HSBC. However this is the exception as opposed to the norm, most students will need to use their overdraft so think carefully before deciding you won’t need it.

Also, if you want, you can use your overdraft to invest or simply put it in savings. You are getting the money at a 0% rate and you could be making 3.5% interest on it in a savings account.

Keep an eye on your student bank account

Unauthorised overdraft costs are something you definitely want to avoid as they are very costly. When you have reached your student overdraft limit banks will normally still allow you to spend but this will come at a price. Bank of Scotland charges one of the highest amounts for unauthorised overdrafts, at a very steep 24.2%. Try and keep an eye on your account as frequently as possible so as to avoid any unwanted charges. The last thing any student wants is charges as high as these.

By students

Hello! This website has been written by student money experts Save the Student! to give you an overview of student bank accounts and what they have to offer you.

The studentsWe review the benefits and catches of all student accounts so you can make an informed choice and avoid the traps!

By students 2

Video: How to choose a bank account

Search the site

The Essential Student Guide to Finance

Click to download for free!

Get Our Free Student Money Tips: