Student bank accounts

Which tertiary student bank accounts get top marks?

Woman inserting card into cash machine

Setting up your first bank account once you’ve left school is a key moment for both you and the provider.

Four out of five of us stay with the same bank for at least five years – so if a bank can hook you with a tertiary student account, it can probably count on your business for years to come.

We crunched the numbers on the accounts and services offered to tertiary students by seven banks.

Credit cards, loans and overdrafts

All the banks were ready to offer tertiary students an overdraft. TSB doesn’t have a special deal for students (but customers can arrange a standard overdraft subject to its usual fees and interest rate). Kiwibank charges students a reduced overdraft interest rate of 5% (see our Table).

The other banks promoted “interest free” student overdrafts. However, that doesn’t necessarily mean customers borrowed this cash for nothing – ASB and The Co-operative Bank charged a monthly maintenance fee. In contrast, ANZ’s and BNZ’s overdrafts were both interest- and fee-free. Westpac planned to drop its monthly fee in August.

Although interest-free cash might seem a win-win, not every student will be able to pay off their overdraft by graduation. If they haven’t, standard interest rates – ranging from 15.39%(TSB) to 19.95% (ANZ, BNZ and Westpac) – eventually come into force.

BNZ allowed graduates to keep their tertiary account perks and interest-free overdraft for a year, while ASB, Kiwibank and Westpac switched students to a graduate account with similar benefits. This gave recent graduates a window to pay off this debt before the full charges kick in.

Though it doesn’t promote personal loans to students, The Co-operative Bank advertised both the lowest (6.99%) and highest (19.99%) interest rate of the seven banks.

This “cushion” isn’t available at The Co-operative Bank or for ANZ graduates older than 20.

As well as an overdraft, tertiary students can sign up for a credit card at all banks. Any charges accrue interest of between 12.95% and 20.95% if not paid in full by the due date.

ASB, BNZ and TSB won’t charge tertiary students any annual or biannual fees to use their credit cards. ANZ, Kiwibank and Westpac waive the costs in the first year – though students must pay $25 to $150 from that point on. In contrast, The Co-operative Bank charged its $20 annual card fees from the get-go.

ANZ, ASB, BNZ, TSB and Westpac also advertised personal loans to tertiary students, with ASB, BNZ and Westpac offering discounted interest rates.

Though it doesn’t promote personal loans to students, The Co-operative Bank advertised both the lowest (6.99%) and highest (19.99%) interest rate of the seven banks. These are both floating rates, so might go up or down over the life of the loan (the same is true at Westpac).

To arrange personal loans, banks typically whack on an admin fee ranging from $99 to $240. ANZ and BNZ waive this charge for student account holders.

The freebies

The days of bonus cash when students opened a bank account are over. ASB touted “free fries daily” – for account-holders with a Visa Debit who visit McDonald’s – but it’s unique for this type of perk. It also offered an app with “premium deals [from] Zambrero, JUCY, Energy Online, STA Travel and more”. On the flip side, these “freebies” could encourage students to spend more than they would without them.

The closest thing to we found to “free cash” was at The Co-operative Bank, which paid tertiary students 4% interest on every dollar in their account up to $4000 (and 0.9% on any dollar over that), while letting them freely access their funds.

In the current climate, 4% is a generous savings rate – well above the other banks’ term deposit rates at the time of our survey. A $1000 balance would earn $40 by year’s end.

ANZ, Kiwibank, The Co-operative Bank, TSB and Westpac throw in a free debit card (either Visa or Mastercard). Students with ANZ can design their own card.

Debit cards have many of the benefits of a credit card, such as being able to shop online and make contactless payments, without the risk of going into debt.

Tertiary bank accounts compared

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We say

The most suitable account will depend on the student’s long-term bank balance:

  • Money in the bank?
    With The Co-operative Bank, students maintaining a positive balance during their studies benefit from the interest the bank pays on every dollar. They’ll also enjoy a free Debit Mastercard.
  • Want to borrow money?
    Students who’ll go into the red can access Westpac’s interest-free overdraft without attracting set-up or monthly fees. They’ll also get to keep their overdraft perks the year after graduating, so can pay off any outstanding amount before being hit with standard charges. A free Debit Mastercard is an added bonus.

Parental advice

Dr Pushpa Wood, Westpac Massey University Financial Education and Research Centre director, said credit was easier to access today than in generations past. “It is quite easy for young people to get into debt. We need an emphasis on saving.”

She’d observed the pervasiveness of large student loans “normalises the whole notion of debt”. The “invisibility” of money is another problem. However, Dr Wood’s research found parents played an important role in their children’s spending habits. Many tertiary students viewed their family as their “first port of call” for financial advice, she said.

Dr Wood advised parents with kids who intended to sign up for a credit card, loan or overdraft to first draw up a budget together. “Don’t make these decisions on the spot.”

Banking ethics

Our latest banking survey found many customers are pushed to sign up for unwanted products, from credit cards to insurance. Across all consumers, 23% said their bank had offered them a financial product they didn’t request. Most of those receiving these offers didn’t think the product was a good option or suited their needs.

We’ve called for banks to drop sales incentives entirely. In our view, these incentives conflict with banks’ responsible lending obligations.

Last year, a report by the Financial Markets Authority (FMA) concluded there was “a high risk of inappropriate sales practices occurring”. The FMA told banks to review – with an eye to removing – sales incentives. Since then, banks said they had all dropped incentives for front-line staff and managers.

However, the banks won’t go the whole hog. According to the FMA, senior executives “at most banks” would keep their bonuses, as would non-frontline staff serving business, wholesale and retail customers at “some banks”.

The authority said it will “monitor the banks’ progress against the plans they’ve provided”. We’ll also be keeping an eye on these issues.

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