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Most students find that their college and university years are when they collect most of the debt that will put pressure on them through their 20s and 30s. The idea of saving money at a time when they have to find cash to pay for books, accommodation and university fees seems bizarre at first, but in fact almost every student can benefit from taking the time to save a little money in a specially selected account. Finding the one which is right for you takes time and effort, but it can be very rewarding in ultimately finding you the savings account you need to pay your way through university.
The banks are quick to sign up any potential students for a current account, but if you put money in here for any length of time, it won’t do anything at all. Most student current accounts have an APR of approximately 0%, which means that you won’t be able to earn any interest even on your student loans. If you want to save money while you are waiting for your bills to turn due, or if you decide that you want to make a little spare cash on the side, a student current account won’t do. Instead, you need to have something specifically designed to get you money when you need it.
There is also a practical reason for choosing to use a savings account, and that is that it is so much effort to transfer and then withdraw money from the average saver. These accounts can be useful budgeting aids, helping you to save, and to work out exactly how much you will need in a month. It can also be a good way of encouraging yourself to save, since that hard-earned cash might look quite attractive in an account. Some savers accounts also make it harder to take that money out, so you benefit either way.
There are several different types of savings account which will suit students. The best is the Instant Access savings account, which not only allows you to save, but also lets you draw money straight out of the account, without having to give notice of your intentions. This type of account is simple and straightforward, but may not always give the best interest rate.
You may also find that another option is the fixed saving account. These are able to offer students a better rate of interest, but in exchange you have to settle your money in the account for a defined term, 3 months, 12 months or up to 5 years. You may also find that the account needs a certain amount put into it. Once you seal up the account, you can’t get access to that money without paying fees, and generally losing money hand over fist. If you don’t want to put your student loan into this type of account, look elsewhere.
NISAs. The new replacement for cash ISAs, this type of savings accounts allows you to save money without having to pay any tax on the interest you earn. While you may not reach the tax threshold anyway on your minimum-wage job, you can still use these NISAs to save money in a long-term way.
While there are many reasons to encourage students to save, and the majority of modern students do have one or two accounts full to the brim with savings (at least at the start of the year), when money gets tight there are several disadvantages to using savings accounts for your money. The most obvious is that if you choose a NISA or a fixed-term savings account, your money is essentially locked away from you. You can’t get to the cash without breaking up the account, and you could also lose money this way. Most students find that they struggle with money during the last term, when student loans are not paid, and it can be too tempting to get into the account and take the money that is there.
On the other side of the fence, the easy access account is as good as useless. Why fund an account to simply take out money when you choose? For desperate students, it is too like a current account to take seriously, and will probably mean that the account is empty before the end of the first term.
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