Santander open student account season
SANTANDER have opened the 2014 student current account season with an addition to their popular 123 line.
The account is offering a four year 16 to 25 Railcard, which gives a third off most rail journeys and is normally £120, as well as 3% interest when the account's in credit.
But it's also got a one of the student market's smallest interest free overdrafts: £1,500, just half of what the market leaders, HSBC and Halifax, are offering their student account holders after three years.
Small overdraft, big problem
That's a big problem, Jake Butler of university finance website Save the Student told us today.
"Unfortunately, the majority of students are more likely to want to make use of a sizeable overdraft rather than be attracted by interest amounts," Butler said.
"To get the 3% maximum a student would have to have over £300 in their account which is a dream for many," he added.
Butler is right that many students struggle to stay in credit during their studies, that's why student current accounts exist in the first place. But some do.
In line with their other 123 accounts, Santander pay interest on their new student account according to a tiered system and interest is calculated daily and paid each month.
Students can earn 1% interest on every £100 to £199; 2% from £200 to £299 and 3% if they're £300 to £2,000 in credit.
That means many students will earn some interest with this account, though probably not much, even if they're usually in their overdraft.
Butler suggests another strategy for students concerned that Santander's interest rates won't be as rewarding as they seem or concerned that they'll need to borrow more.
"It is possible for students to set up a Santander account, grab the free railcard and then switch to another student account with a larger 0% overdraft if they feel that they're going to spend more time in the red than in the black during their time at uni," he told us.
As this year's competition for student account holders hots up, that may seem like an attractive option.
Lloyds Bank also launched their 2014 student account this week.
The bank are offering a free NUS extra card and an interest free overdraft of up to £2,000 after three years (all of these overdrafts are awarded according to individual circumstances).
But, like Santander, the bank is also offering a number of rewards that might not be so rewarding for the vast majority of students.
The bank is selling access to their 'Everyday Offers' site as "rewarding student account holders with cash back".
However, the site is actually much closer to a rewards voucher site. Those sites, as we've covered before, generally have a limited number of partners and can actually lead to cardholders spending more, because they're chasing rewards rather than getting the cheapest price.
Fighting for new customers
The banks are going all out to fight for student customers because they're a valuable asset.
Graduates still earn significantly more on average than those without a degree.
At 33, according to the Office for National Statistics, the average graduate is earning £33,000 a year. Those that stopped full time education at A levels are on £21,000 a year, on average.
Those lifetime earnings matter because the bank we pick at 18 or 19 is highly likely to be the bank we're with for life.
Just 2% of current account holders intended to switch current accounts, according to Payments Council research released at the end of last year.
Far fewer than that will actually make the move.