Student Money in the First Term: Bank Accounts, Overdrafts, Rent, Guarantors and Budgeting

STUDENT FINANCE SERIES · UK STUDENTS 5 OF 5

UK students track. This article covers Student Finance England, SAAS, SFW and SFNI. Coming to the UK from abroad? Start with how international students fund UK study, or see the full series.

Choosing a student current account

Choosing a student current account

Student current accounts are offered by major UK banks and typically include an interest-free arranged overdraft that can be used during the course. Eligibility usually requires you to be a UK resident for at least three years and enrolled on a full-time course. Overdraft limits often increase each year of study, and accounts are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per bank.

When selecting a student current account, the main feature is the interest-free overdraft. Banks advertise a maximum overdraft limit, but the actual amount you receive is determined by your credit history and the bank's assessment. Overdraft tiers are often structured by year of study: for example, a first-year student may be offered a lower limit than a final-year student. The overdraft is arranged, meaning you agree the limit in advance, and you should not exceed it without prior approval, as unauthorised overdrafts incur charges.

Eligibility for a student account generally requires you to be a full-time student at a UK university or higher education institution, and to have been a UK resident for at least three years. Some banks also accept students on certain part-time courses or those studying abroad for a year. If you already have a current account with a bank, you may be able to switch to its student account, but switching is not automatic; you need to apply and meet the criteria.

All UK banks that offer student accounts are covered by the FSCS, which protects deposits up to £85,000 per person per bank. This means if the bank fails, your money is safe up to that limit. The FSCS protection applies to the total amount you hold with that bank across all accounts, including savings, so if you have more than £85,000 in one bank, the excess is not protected.

When comparing accounts, consider the overdraft limit, any fees for using the overdraft beyond the interest-free period, and additional perks such as railcards or cashback. However, the most important factor is the overdraft facility, as it can help cover unexpected costs during term time. It is advisable to read the terms and conditions carefully, particularly regarding when the interest-free period ends and what happens if you graduate or leave your course.

Sources: FCA, FSCS, GOV.UK.

Halls, PBSA and private lets: what you sign and pay

Halls, PBSA and private lets: what you sign and pay

University halls of residence are usually let on a fixed-term licence for the academic year, with rent payable in instalments. Purpose-built student accommodation (PBSA) is similar but often includes all bills. Private lets involve an assured shorthold tenancy, a deposit capped at five weeks' rent, and often a requirement for a UK-based guarantor. Deposit protection is mandatory for private lets.

University halls are typically managed by the university or a partner, and you sign a licence agreement, not a tenancy. This means you have fewer rights than a tenant, but the contract is straightforward: you pay rent for a fixed period, usually 38 to 42 weeks, and the licence covers your room and shared facilities. Rent is often payable in three instalments, aligned with the student loan disbursement dates. Some halls are all-inclusive, meaning utilities, internet, and contents insurance are included in the rent, while others charge separately.

Purpose-built student accommodation (PBSA) is privately owned and operated, often by large companies. PBSA contracts are also licences, and rent is typically all-inclusive, covering utilities, Wi-Fi, and sometimes gym access. PBSA tends to be more expensive than university halls, but it offers more amenities and often longer lease options, such as 51 weeks. You pay a deposit, which is usually capped at five weeks' rent, and this must be protected in a government-approved deposit scheme, even though it is a licence.

Private lets involve an assured shorthold tenancy (AST) if you rent from a landlord. Under an AST, your deposit is capped at five weeks' rent if the annual rent is under £50,000, or six weeks if over that threshold. The landlord must protect your deposit in a government-approved scheme within 30 days and give you prescribed information. Rent is usually payable monthly, and you are responsible for paying utilities, council tax (unless exempt), and internet. Private lets often require a guarantor, especially for students without a UK credit history.

Before signing any contract, check what is included in the rent, the length of the tenancy, and the notice period. For private lets, you may be asked to pay rent in advance if you do not have a guarantor. Always read the contract carefully and understand your obligations, such as maintaining the property and reporting repairs. If you are unsure, seek advice from your university's accommodation office or students' union.

Sources: GOV.UK, FCA, universities.

Guarantors and guarantor services

Guarantors and guarantor services

A guarantor is someone who agrees to pay your rent if you cannot. Most private landlords and some PBSA providers require a UK-based guarantor, usually a parent or guardian, who earns a certain income. If you do not have a suitable guarantor, you can use a commercial guarantor service, which charges a fee, often a percentage of the annual rent.

In the UK, a guarantor is typically a UK resident aged over 18, often a parent or close relative, who has a good credit history and a stable income. Landlords usually require the guarantor to earn at least three times the annual rent, though this can vary. The guarantor signs a legal agreement, making them jointly liable for the rent and any damages if you default. This means the landlord can pursue the guarantor for unpaid rent or costs.

If you are an international student or a UK student without a suitable guarantor, you may face difficulties. Some landlords accept a guarantor from overseas, but this is rare due to enforcement challenges. In such cases, you might be asked to pay several months' rent in advance. Alternatively, you can use a guarantor service, which acts as your guarantor for a fee. These services are typically used by students who cannot provide a UK-based guarantor.

Guarantor services charge a non-refundable fee, often calculated as a percentage of the annual rent, for example, one month's rent or a flat fee. The service will assess your application and may require you to provide evidence of your student status and financial situation. If you use a guarantor service, the landlord receives a guarantee from the company, which covers the rent if you fail to pay. However, you are still responsible for repaying the guarantor service if they have to pay the landlord.

Before agreeing to be a guarantor, the individual should understand the risks, as they are legally liable for the debt. It is also important to check the terms of the guarantor agreement, such as how long it lasts and whether it covers renewals. If you are considering a guarantor service, compare fees and read reviews, but be aware that these services are not regulated by the Financial Conduct Authority.

Sources: GOV.UK, Citizens Advice, universities.

Budgeting around three instalments

Budgeting around three instalments

Student loans are paid in three instalments, usually at the start of each term. Rent is often due at the same time, so it is important to set aside money for rent from each instalment. A budget should cover term-time spending, such as food, travel, and socialising, and include a buffer for unexpected costs.

The student loan is paid in three instalments, typically in September, January, and April, aligned with the academic year. The amount you receive depends on your household income and where you study. Your rent is often due in full or in instalments that coincide with these loan payments. For example, if your rent is £4,000 per year, you might pay £1,000 per term, leaving the rest for other expenses.

To budget effectively, first calculate your total income for the term, including the loan and any part-time work or parental contributions. Then list your fixed costs, such as rent, bills, and travel, and variable costs like food and entertainment. A common approach is to set aside a specific amount for rent from each instalment, perhaps by transferring it to a separate savings account. This ensures you have the money when rent is due.

It is also wise to build a buffer of around £200 to £300 to cover unexpected expenses, such as a broken laptop or an emergency trip home. This buffer can be built by saving a small amount each week. Avoid spending your entire loan in the first few weeks, as you will need to make it last for the term. Use a budgeting app or a simple spreadsheet to track your spending.

If you find that your loan is not enough, consider part-time work, but be aware of the tax implications and your study commitments. Also, check if you are eligible for bursaries or scholarships from your university. Remember that the loan is not just for rent and food; it also covers course costs, such as books and equipment, so factor these into your budget.

Sources: GOV.UK, Student Loans Company, universities.

Council tax, part-time work and tax

Council tax, part-time work and tax

Full-time students are exempt from council tax, but you must apply for an exemption certificate from your university. If you work part-time, you pay tax through PAYE, but you only pay income tax if your earnings exceed the personal allowance, which is set by the government. You may also be entitled to the National Living Wage.

Full-time students are exempt from paying council tax if they are studying for at least 21 hours per week and the course lasts at least one academic year. To claim the exemption, you need to provide your local council with a certificate from your university, which confirms your student status. If you live in halls of residence, the council tax is usually not charged, but if you live in a private house with other students, you must all be full-time students to be exempt. If one person is not a student, the household may be liable for a discount.

If you work part-time during term time or holidays, your employer will deduct income tax and National Insurance through the Pay As You Earn (PAYE) system. However, you only pay income tax if your total earnings in a tax year exceed the personal allowance, which is the amount you can earn before paying tax. The personal allowance is set by the government and changes each year; for the current rate, see GOV.UK. If you earn below this threshold, you should not pay income tax, but you may still pay National Insurance if you earn above a certain amount.

If you are working part-time, you should ensure your employer has your correct tax code. If you have more than one job, you may need to contact HMRC to ensure your tax code is split correctly. You can also claim a refund if you have overpaid tax at the end of the tax year. Additionally, you are entitled to the National Minimum Wage or National Living Wage, which is the legal minimum pay per hour. The current rates are available on GOV.UK.

If you are self-employed, such as doing freelance work, you must register for self-assessment and file a tax return. However, most students are employed on a PAYE basis. It is important to keep records of your income and any expenses if you are self-employed. For more information, visit GOV.UK.

Sources: GOV.UK, HMRC.

Overdrafts after graduation

Overdrafts after graduation

Student overdrafts are interest-free only while you are a student. After graduation, the interest-free period typically ends, and you will be moved to a graduate account or a standard current account with interest charges. Graduate accounts often offer a reduced interest-free overdraft for a limited time, after which you must repay or switch.

When you finish your course, your student current account will be converted to a graduate account or a standard account, depending on the bank. The interest-free overdraft does not continue indefinitely. Most banks offer a graduate account with a reduced interest-free overdraft for a set period, often two or three years after graduation. For example, you might have an interest-free overdraft of £2,000 in the first year after graduation, reducing to £1,000 in the second year, and then to zero. After this period, any overdraft balance will incur interest at the bank's standard rate.

It is important to plan for the end of the interest-free period. If you have an overdraft balance, you should aim to clear it before the interest-free period ends. You can do this by saving money from your salary or using a graduate account with a lower interest rate. Some banks allow you to switch to a different account if you are not happy with the terms. However, switching may affect your credit score, so consider your options carefully.

If you are unable to repay the overdraft, you may be charged interest, which can be high. It is advisable to contact your bank to discuss options, such as a repayment plan. Alternatively, you could transfer the balance to a 0% purchase credit card, but be aware of transfer fees. Always read the terms of your graduate account to understand when the interest-free period ends and what the interest rate will be.

After the graduate period, you can switch to a standard current account, which may offer a small interest-free overdraft or none at all. It is wise to shop around for an account that suits your needs, such as one with no monthly fees and a good mobile app. Remember that your credit history will be reviewed when you apply for a new account or overdraft.

Sources: FCA, banks.

Which student bank account has the best 0% overdraft?

Which student bank account has the best 0% overdraft?

The best 0% overdraft varies by bank and year of study. Most major UK banks offer interest-free overdrafts, with limits typically increasing each year. Compare offers from banks like HSBC, Barclays, and Santander, but note that the actual limit depends on your credit assessment. Check the FCA for current information.

Are student bank accounts protected by the FSCS?

Are student bank accounts protected by the FSCS?

Yes, student current accounts are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person per bank. This means if the bank fails, your deposits are safe up to that limit. The protection covers all accounts you hold with the same bank, including savings.

Do I need a guarantor for student accommodation?

Do I need a guarantor for student accommodation?

Not always. University halls and some PBSA providers do not require a guarantor. However, private landlords often ask for a UK-based guarantor, especially if you have no UK credit history. If you cannot provide one, you may need to use a guarantor service or pay rent in advance.

How much deposit can a landlord ask a student for?

How much deposit can a landlord ask a student for?

For an assured shorthold tenancy, a landlord can ask for a deposit of up to five weeks' rent if the annual rent is under £50,000, or six weeks if over that amount. This is capped by law. The deposit must be protected in a government-approved scheme.

Do full-time students pay council tax?

Do full-time students pay council tax?

No, full-time students are exempt from council tax. You need to apply for an exemption certificate from your university and provide it to your local council. If you live with other full-time students, the property is exempt. If you live with a non-student, a discount may apply.

LAST REVIEWED 2 SEPTEMBER 2026