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Student savings accounts: 7 things you need to know

Just because you’re a student doesn’t mean you can’t start saving money. Thanks to banks offering incentives to low-income students, modest savings can go a long way during your studies. Before deciding on where to put aside your cash, explore the 7 things you need to know about student savings accounts in this informative guide. Let’s begin.


1. What is a student savings account?

Banks encourage students to open accounts by offering benefits which are valid for the duration of the students’ study. Traditionally, checking accounts have lured students with perks such as free travel cards, discounts on purchases, and interest-free overdrafts.

In recent years, student savings accounts have become more common. They attract students by making it easier to deposit funds and earn interest. However, these offers aren’t available to standard customers—to open a student account, you have to be registered at a university or college with official paperwork or an ID card to prove your eligibility.


2. The difference between a student savings account and a checking account

Checking accounts are used for day-to-day transactions such as rent, food, clothes, and other living costs. Your account is easily accessible, and you can transfer, withdraw, or spend your money via debit card as frequently as you wish. Additionally, most traditional checking accounts don’t pay any interest on your money.

That means that if you’re looking to save, it’s wise to open a specific savings account. These accounts are less flexible because they aren’t for regular transactions, but instead are designed for long-term investments. They pay interest, but your money isn’t as accessible, and withdrawals or transfers may include a fee.


3. The different types of student savings accounts

If you’re in a position to save while studying, perhaps due to a part-time job or excellent budgeting skills, you’ll want the best students savings account you can find. The amount of money you can save, how often you can deposit into your account and whether you will need to withdraw funds, all make a difference.

To decide what’s best for you, here’s a rundown of the different types of savings accounts depending on your needs. These include:

  • Regular saver accounts that require a commitment of a minimum deposit each month for a specified period of time (such as 12 months.) They pay high interest but you could be penalized for missing a payment.
  • Fixed-rate savings accounts that offer high interest rates for a set period of time, but you can’t make withdrawals during this period. Expect significant charges if you need to access your money if an emergency arises.
  • Easy-access savings accounts that are better for low-income customers as you’re able to withdraw your money without fees and without notice. The downside is a lower interest rate.
  • Online savings accounts that are offered by both traditional and digital banks, and cover all of the above account types. They often offer higher interests due to saving costs associated with brick-and-mortar branches.

Just because you’re a student doesn’t mean you’re unable to open a standard savings account—you totally can! However, it’s important to note that student savings account provide flexibility for low-income individuals—these can include easy withdrawals, no additional fees, and higher interest rates. They’re the best choice if you’re looking to save a modest amount as you study.


4. What to consider when choosing your student savings account

With lots of competition on the market vying for your attention, choosing a student savings account is overwhelming. As mentioned above, if you’re only saving modest amounts, aim for an account with flexibility on deposit amounts, frequency of deposits, online banking, and ease of withdrawals. Other criteria to guide your decision could include the following:

Make sure your student savings account protects your money

You’ll want to ensure your money is protected, especially if you plan to build your savings long-term. Fortunately, within the EU, deposits of up to €100,000 are guaranteed by the European Union’s deposit guarantee scheme. This means if your bank goes bust, you will be automatically reimbursed within seven days.

Millenials are generally comfortable with modern technology, but many are still skeptical towards online banking with a digital-only bank. Yet these fears are unwarranted—Consumer Reports notes online banking may actually be more secure than traditional banking, due to data encryption and close monitoring by financial institutions. For example, N26 insures deposits of up to €100,000 held in the member states of the European Union.

Avoiding tax and additional fees

Tax isn’t too much of a concern for lower-income students as most countries within the EU only charge tax after income exceeds a set limit. Tax laws vary by country, but it helps to have an overview of taxation on interest in specific countries. Here are a few examples:

  • Germany has a tax-free allowance on interest earnings up to €801.
  • In France, savings interest is added to other income and the total is taxed accordingly. Income up to €9,710 is tax free. Income between €9,710 and €26,818 is charged at 14 percent.
  • Spain charges 19 percent tax on interest amounts up to €6,000.
  • Italy adds interest to total earnings and taxes the total accordingly. The rate is 23 percent on earnings up to €32,500.
  • In the UK, those earning under £17,500 can earn £5,000 of interest tax-free.

In addition, you’ll want to make sure your chosen student savings account has no hidden fees. Carefully review the policy on withdrawing funds. As a student, it’s possible that you’ll need to access your savings if daily funds are running low, and you’ll want to avoid an additional penalty for accessing your own cash.


5. What to look for with interest rates

In addition to avoiding taxes and additional fees, a decent interest rate is essential. As covered above, an easy-access account with no fees will offer lower interest. This is the time to consider whether a student savings account is the best fit—do you have significant savings which you won’t need to access in the near-future? If so, a fixed-rate account is the best option.

If your savings are moderate and you require easy access and no fees, a lower interest rate is a worthwhile sacrifice for the added flexibility. To gauge a decent interest rate, according to TheGlobalEconomy, average interest rates for EU countries are:

  • Germany: 1.45 percent
  • France: 2.24 percent
  • Spain: 1.85 percent
  • Italy: 3.75 percent
  • UK: 2.39 percent

6. What you need to open a student savings account

So, you’ve decided you need a savings account, and perhaps you already have a specific one in mind. What’s next? Usually, you’ll need three documents to open your student account: proof of identity, proof of address (or proof of address registration in Germany) and proof of your student status. You may need evidence of your savings if your student savings account has a minimum deposit amount.

Depending on your personal situation and the type of account you’re opening, you may need to provide your tax ID number or national insurance number, proof of employment or income, or proof of your entitlement to reside in the country in question. Be prepared to have the following documents on-hand.

To prove your identity:

  • Passport
  • Driving licence
  • EU/EEA ID card
  • Biometric residence permit

To prove your address:

  • Driving licence
  • Bank statement
  • Credit card statement
  • Utility bill (electricity, water, gas, etc.)
  • Mortgage statement
  • Letter from the tax office
  • Proof of address registration, in Germany

To prove your student status:

  • Your student ID card
  • A letter from your country’s university administration service (e.g. UCAS in the UK)
  • A letter from your university
  • Your apprenticeship agreement

7. Managing student finances and setting a budget

Once you’ve set up your student savings account, the next step is managing your finances. General guidance is to aim to have three to six months’ expenses stashed in your savings account as a buffer. If your boiler suddenly breaks, your car needs an emergency repair or you unexpectedly have to book a flight home, a solid emergency fund will cover the cost and take away any stress.

However, for students with low-incomes, putting aside this amount of money may be difficult or even impossible. If your goals are modest, make staying on top of regular payments a necessity—no matter how small. If you have a regular savers account, also make sure you have enough to cover the monthly payments to avoid fines.

Creating a budget to help you save

If your account is easy-access, you’ll be responsible for budgeting accordingly. Set a budget by calculating your total income—including student loans, bursaries, and wages from part-time work—before factoring the following figures in your calculations:

  • Rent
  • Food expenses
  • Utility costs
  • Ongoing costs (mobile phone bill, gym membership etc.)
  • Travel expenses

Excess money can then be deposited into your student savings account and start earning interest. As a student, don’t be disappointed by starting small. Saving €50 per month adds up to €1,800 by the end of a three-year course, before interest. Armed with new knowledge about student savings accounts, you can relax knowing that any savings—no matter how modest—will be well-looked after.


Your money at N26

Is setting a budget a struggle? The N26 bank account makes budgeting easier with automatic categorization and a clear overview of your transactions, allowing you to monitor spending directly in the N26 app. Better still, N26 Spaces lets you create sub-accounts specifically for your savings goals so you can shuffle away your pennies with just a tap of an app.

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