Lloyds TSB is to offer student current accounts through its 2,000 branches which comply with Islamic law.
So as to meet the requirements of Islamic Sharia law, the accounts will not pay or charge interest.
In addition, money held in the accounts cannot be invested in certain industries such as gambling or alcohol.
Lloyds TSB is the first bank to offer an Islamic student account. It has operated Sharia-compliant mortgages and other accounts since 2005.
Students opening the account will receive a £1,500 interest-free overdraft as well as free gifts such as an iPod Shuffle and Youth Hostel Association Membership.
Paul Sherrin, head of Islamic Finance at Lloyds TSB, said that the UK's two million-strong Muslim community was young and growing fast, and needed products tailored to their beliefs.
PRINCIPLES OF ISLAMIC BANKING
"Young Muslim students have had no choice but to go against their beliefs by opening traditional bank accounts," he said.
"By providing a real alternative that meets their financial and religious needs, we have made it possible for them enjoy campus life without compromising their faith."
The bank worked with a board of Muslim scholars to design the account.
The account will also be open to non-Muslims.
Services shunned
Traditionally, many Muslims have shunned mainstream financial services and High Street banks because their products do not comply with Sharia law.
Under Sharia Islamic law, making money simply from money - such as charging interest - is usury, and is not permitted.
Instead, wealth should be generated only through legitimate trade and investment in assets.
Investment in companies involved with alcohol, gambling, tobacco and pornography is also strictly off limits.
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