For this year's students, the financial lessons are only just beginning

The scramble is on for university places. Thousands of A-level students will be sitting nervously this week waiting to see where and what they will be studying over the next three or four years. But among the confirming of offers of places made and the merry-go-round of clearing, students should not take their eye off who will they will be banking with at university and beyond. With the cost of tuition set to soar and graduate debt frequently breaking the £20,000 mark, now is more important than ever for university students to select the right bank account.

Financial experts and graduates alike are in agreement that the basic necessities, rather than the bells and whistles, are what count with a student account. Free iPods and music vouchers may be appealing in the short term but if funds begin to dry up, the size of an interest-free overdraft will make all the difference.

Interest-free overdraft

While most students will be eligible for a student loan during university, the rising cost of living, and of education, means an interest-free overdraft can often become a lifeline unless additional funding from parents or relatives is guaranteed. Having a pot to dip into for rent, living costs or tuition fees can be immensely helpful, but it is important to look at the charges for authorised and unauthorised withdrawals as well.

At the moment, the largest interest-free overdraft on offer for a student bank account stands at £3,000 and is available from both the Bank of Scotland's and Halifax's student current accounts. For withdrawals authorised above this amount, both banks charge 7.2 per cent EAR and for unauthorised withdrawals significantly more at 24.2 per cent EAR.

By contrast, the HSBC and Santander student accounts provide overdrafts of £1,000 in the first year of university, which rises incrementally to £2,000 by the fifth year, if the course runs that long. However, neither charges interest on authorised withdrawals. For unauthorised withdrawals, HSBC charges a typical 3.5 per cent EAR and Santander charges 28.7 per cent.

Bells and whistles

With statistics showing people are more likely to get divorced than switch bank accounts these days, banks are prepared to go to extended lengths to entice new customers with attractive perks and offers. Yet the savvy student will look beyond the wrapping for the intrinsic value of a current account.

Robert Lockie, an investment manager at London-based Bloomsbury Financial Planning, warns against prioritising short-term frills over long-term gains. "Real benefits like cheap or free overdrafts are more valuable than record tokens or gimmicks. Banks want to attract students as the future graduate will generally become a higher paid customer, so it's worth it for banks to attract them," he says.

When to open an account

Timing is key when it comes to getting a student bank account up and running. Many students make the mistake of waiting until the freshers' fair to open an account, but activating one before term-time kicks in gives more time to take advantage of any preferential rates as well as get finances in order.

James Harvey, an independent financial planner at Ealing-based James Harvey Associates, says opening an account early can also help when dealing with unexpected circumstances.

"Open early and get the account in operation. Payment of a student loan can get delayed so cash flow is important at the outset, and having an overdraft rate agreed and in place prior to freshers' week is important. Buying books and paying membership subscriptions comes early on, so an active account is helpful."

And while it always makes sense to compare rates, sometimes there can be a benefit to staying with an existing bank provider. Mr Harvey says a decent track record with a bank in the years leading up to university can stand you in good stead for a favourable student account deal that might not be available elsewhere.

"If you already have a bank account, converting this to a student account may bring better terms than a new bank account," says Mr Harvey. "You are already known to the bank and will have started to show some account management discipline, so the bank can justify better terms."

What to avoid

Like unauthorised overdraft withdrawals, credit cards should be avoided unless absolutely necessary and paid off religiously every month. Most big banks offer credit cards beside student accounts, but used without consistent foresight these can lead to the accumulation of unwanted and unnecessary debt.

Interest rates on credit cards can easily top 20 per cent and left unpaid can balloon out of control.

If you don't need to borrow

While a student loan and overdraft may be a necessity for many people, students with a guaranteed source of funding stand to profit from taking advantage of bank and loan facilities if used properly.

"Taking the maximum student loan, even if it is not needed, can provide two benefits," says Mr Harvey. "The money can be placed on deposit with a high interest rate account or individual savings account and benefit made through the interest payment. This may well provide a longer-term source of cheap finance. Even if you have the means to repay the loan, there will be few better sources of cheap finance post university. However, efficient management skills are important here. So if this is not your forte, don't go there!"

Think long term, not freebies

For architecture graduate Rob Ash, 22, the biggest challenge of going to university was completing a degree while also managing his finances. The Wolverhampton University graduate did what a growing number of students do these days, which is to take on a part-time job. He also opted to live at home with his parents rather than go into debt paying rent. Yet in spite of these measures, he graduated with a student loan debt of £18,500.

Looking back, he says that having a sizeable overdraft to dip into through his Lloyds student account helped him to stay afloat. "I knew that the interest-free overdraft could become important and beneficial to me if it became difficult to keep up with my part-time job while completing my degree," he says. When it comes to perks, Rob says his student account didn't have some of the attractions others had, but the overdraft facility more than compensated.

He says: "The offer of freebies is all well and good, and some can be useful, but do your research and try to find an account that is easily accessible and will support you through your studies. See what's on offer, rather than going for the first one you see."