The banks won't give you the third degree

Banks are keen to win students' business: although poor when they are at college, they have an above-average earning potential after they graduate. In the past few years, the banks have changed the incentives they offer students to concentrate less on gimmicks and more on straightforward financial services, such as an overdraft facility, discounted insurance or phone and internet banking.

Some banks have yet to announce their packages for students going to college this autumn. But Barclays is offering interest-free overdrafts of pounds 800 in year one, rising to a total maximum loan of pounds 1,800. Like most banks, the maximum applies only to a fifth year. Most students in England, Wales and Northern Ireland do three-year courses, entitling them to a maximum pounds 1,600. Students doing four years - including linguists, and those on "sandwich" degrees or at Scottish universities - can go on up to pounds 1,700 in their final year.

Other sweeteners haven't died out. Barclays gives a pounds 20 Waterstones voucher, plus pounds 20 more for students on selected courses. Travellers cheques and foreign currency are commission-free. Students in credit get a paltry 0.10 per cent interest.

Bank of Scotland is less generous with free overdrafts, offering a top pounds 1,000 to final-year students, but it pays 2.5 per cent when in credit. The Royal Bank of Scotland's deal is better still, with an overdraft rising from pounds 1,000 to pounds 2,000, and 3 per cent interest in credit.

Students who need to borrow more can usually do so: rates are slightly better than for regular customers. The Bank of Scotland and Royal Bank of Scotland are relatively expensive: BoS charges 5 per cent over base rate - making a total overdraft rate of 10 per cent - and RBS 3-6 per cent over base. NatWest charges 9.4 per cent, the Co-operative Bank 9.75 per cent, and Halifax 7.9 per cent. Cheapest for extra borrowing are HSBC and Barclays, both 1 per cent over base.

Students who think they'll have to borrow heavily may find it cheapest to bank with Barclays or HSBC; those who are better off, perhaps as they have part-time work, may favour one of the Scottish banks. Students should also consider the way banks will handle their accounts when they graduate. Anyone graduating with substantial debts will not be best placed to switch banks. Some banks give "qualifying periods" with student terms continuing after graduation. The Co-op, RBS and Halifax give one year extensions. Others transfer students to graduate accounts. HSBC will continue the interest-free overdraft at pounds 1,500 for a year, falling to pounds 500 three years after graduation. Those who go on to a higher degree can nearly always extend a student account.

This year's student account packages differ little from last year, even though undergraduates face higher bills. So it's all the more important to find the best package. "I would advise any student to play the market," said Mark Howard, financial adviser at Maddison Monetary Management. "If a bank gives you a free overdraft and a cash card, then use them."

Students should also consider how easy it is to get their money. In city centres there will be few problems, but university campuses may only have cash machines for high street banks.

The RBS doesn't have that many branches south of the border, but it offers free cash withdrawals from all other banks' ATMs and the Link network. As many banks have started charging a pounds 1 "disloyalty" fee for using some machines, this could save significant sums each year.

Phone and internet banking mean that it is less important to pick a bank because it has a branch near the university. The Co-op has a dedicated student banking team in its call centre, and also operates an automated banking service via a Vodafone mobile phone.

Students can be better off with an account at a campus branch - NatWest gives students an extra pounds 15 - but the main advantage is easy access to dedicated advisers, more likely to understand students' problems. Martin Preater, a student business officer at Barclays in Bath, points out students sometimes struggle with budgets as they often get their money in large, lump sums - from the Student Loan Company or parents.

STUDENT ACCOUNTS

Bank Interest when Interest-free

in credit overdraft

Bank of Scotland 2.5% pounds 800 to pounds 1,000

Barclays 0.10 % pounds 800 to pounds 1,800

Co-operative Bank - pounds 1,000 to pounds 2,000

Halifax 2% pounds 1,000 max

HSBC 0.10%-0.25% pounds 750 to pounds 1,500

NatWest 1.5% pounds 1,000 to pounds 2,000

Royal Bank of Scotland 3% pounds 1,000 to pounds 2,000