Interest Rates on Student Cards

Are student credit cards good value?

Whereas few people would deny that student current accounts offer very attractive terms, providing you stay within your agreed limits, the interest rates on student credit cards are rarely good value for money. If you do spend money on your student credit card, it is important to make sure you have a system in place to pay back your debt as soon as possible.

Herein rests the problem for students. With infrequent but large payments coming in (student loans are paid at the beginning of each term), many students smooth their consumption by borrowing from banks over the duration of each term. They get into debt, then clear any debts with their student loan (this assumes that their debts are manageable).

Banks that offer student credit cards worked this out long ago, and know that over the course of the year, students are likely to carry monthly balances over while waiting for their student loan. On top of this, most students receive some additional funding from parents, so banks know that parents are likely to act as informal guarantors - if the student gets into too much debt, the parents are likely to help.

Therefore, as banks are likely to make a good profit from student credit cards, the cards themselves do not have exceptionally high APRs. However, students invariably have no regular source of income, so this means interest rates will not be particularly low either. All in all, the comment that best sums up these student credit cards is: "...acceptable performance this term - could try harder..."

The Smile Current Account and Credit Card Package

If you are shopping around for a current account before joining / while at university, we would recomment the Smile current account. Smile is the online banking operation of the Co-operative Bank, and like other online banks such as Egg, Smile benefits from low running costs (no branch network to pay for) and can therefore offer better terms to consumers.

Not only does the Smile current account pay an interest rate of 3% on your balance (one of the factors that contributed to it winning the 2003 Guardian Consumer Finance Award for Best Current Account) compared with the typical sub-0.5% offered by most student account providers, but applying for the Smile current account offers you reduced terms on a Smile Credit Card of just 9.9%.

Since 1992, The Co-operative Bank (the parent company of Smile), has followed its Ethical Policy when it comes to investing account holders' money. The policy was based on the concerns of customers, and as a cooperative, the bank responded.

Smile has been included in the bank’s Ethical Policy since December 2001 and this policy is reviewed every three years, to ensure it still meets the needs of customers. As an online bank, Smile invite individuals to submit their opinions on the policy on their website, to help them to continue to develop it. You can view the Smile Ethical Policy yourself, but please note that it is a pdf file.

The Smile Credit Card is not specifically aimed at students, but most students have a good chance of being accepted for this card. Also, the 9.9% rate is not variable - in other words, if you are accepted for the Smile Credit Card, you get the headlining, advertised interest rate of 9.9%. This in part helped the Smile credit card win awards in its own right too, twice walking away with the trophy for 'Best Credit Card' at the Guardian Consumer Finance Awards (2002 & 2003). However, you only receive this rate if you have opened a current account with Smile; otherwise, expect the standard APR to be 11.8%, which is still very competitive for a card that offers 0.5% cashback. Remember though, that the Smile current account need not be your primary, student loan payment bank account. We recommend you read our review of the Smile credit card and current account.