Banking 101 for College Students

By on May 24, 2017

If you or someone you know is a young adult about to begin their independent financial journey, it’s worthwhile to search for a bank that’s a good match. Many banks and credit unions offer special student checking accounts with extra benefits for enrolled students. Sit down with you parents and family financial advisor to look more in depth at each institution in order to understand what kind of checking account to open.

Choosing the Right Bank

On campus, you probably noticed you have three options in banking: your parents commercial bank, another commercial bank ( perhaps popular in that particular city or region) and the local credit union(s). In most cases students are looking for convenience and are likely to choose the same bank at their parents or open a joint account with them. Unfortunately, for students traveling far from home this is rarely an option, and they will have to look into other financial institutions.

The bank you choose should have ATM locations on or around campus so students have easy access to money and can avoid out of network ATM fees. And students opening new accounts will still have to make the choice of whether to bank with a commercial institution or a local credit union.

Credit Unions vs Commercial Banks

As you weigh through your account options, you will have to choose which type of financial institution to bank with – this will affect your account benefits, interest rates and loan possibilities today as well as after graduation.

Credit unions are a member-owned, non-profit financial institution – in which any profit made (by members having good investments and savings with less outstanding debt) is returned to members with lower fees, better loan rates and account perks. In general, credit unions have a higher savings rate and lower interest rates on small, short-term loans. So if you want to have a strong savings plan or will want to buy a car during your junior year, a credit union membership may benefit your plan.

Credit unions rarely charge large fees for account management, ATM or branch services, debit card transactions or minor overdrafts. And while they tend to have few, if any, branches and aren’t as convenient as commercial banks, most credit unions are part of shared networks of ATMs, which means that you will still be able to make deposits and withdrawals if you move to another city.

For-profit commercial banks – Wells Fargo, Bank of America, Citigroup, Chase, etc.. –
are convenient for precisely the sorts of things that students tend to do–like making withdrawals on campus and at home and 24-online banking. And while you don’t need it right now, having you money with a large commercial bank can help when it comes time to expand your credit or purchase a home.

Review each student account option available at both institutions and compare those with your financial situation and banking needs. And don’t forget about your future goals – they may be a long time off and they may change, but you will have a strong safety net if you start planning while in college.

Choosing the Right Bank Account for a College Student

Here are 5 basic features financial advisors think students should look for in a student checking account:

  1. Low to No Minimum Balance Requirement or Checking Fees
  2. Penalty Forgiveness (for first overdraft or non-partnered ATM use)
  3. Ability to Link Accounts, Direct Deposit, Free Checks and Debit Card Use
  4. Mobile and/or Online Banking
  5. Automatic Savings

Low to No Minimum Balance Required or Monthly Fees

Students don’t often have a regular source of income, so it’s important to make sure their balances can go low without penalty. Look for a student checking account that doesn’t charge fees if the balance drops below a high number such as $200. As an alternative, some banks and credit unions will require a low minimum balance to open an account — such as $50 — but then won’t require a minimum amount to maintain the account.

Look for Accounts That Waive Your 1st Time Penalties

It’s easy for college to become some consuming that students make mistakes when maintaining their checking account. Perhaps they did not keep a good record of their spending and as a result, they may overdraw their checking account. Insufficient Fund (NSF) fees can be hefty at any financial institution. Look for a student checking account which will waive this penalty the first time it occurs.

Some banks may also offer overdraft protection by linking a checking account to a savings account or line of credit as a backup. There may or may not be a fee for the automatic transfer, however they are lower than your average $30 NSF fee. Pass on any overdraft protection service. Protection sounds nice, but the monthly fees – nearly the cost of an overdraft – isn’t worth the price.

College students should not take this as an excuse for poor financial planning, but since they are early in process of financial independence, they should have some leniency provided they do not continue making the same financial mistakes.

You Need a Bank Account with ATM Access, Direct Deposit, Free Checks, a Debit Card and Linked Accounts with Your Parents

Before opening up any free student checking account, make sure you know about any extra fees that may be assessed and when. Ideally college students want and need free, free, free.

Ask for free checking with no monthly fee, free checks, free debit cards with no usage charges and free direct deposit.

Review the ATM network and any penalties assessed if you use another bank’s ATM. If you can, pick a bank with an ATM network that fits well with your regular travels. Ask about refunds for out-of-network ATM fees. And consider linking your account to an account owned by your parents. This is not so they can snoop, but to make it easy for them to transfer money to you. They could set up an account just for this purpose.

Ad direct deposit will allow you to have you loan disbursements, tax returns and paychecks sent directly into your account so you have money when you need it.

Make Use of Mobile and Online Banking Platforms

Many banks and credit unions offer checking accounts with online banking, online bill pay, online statements and the ability to set up notifications if the balance drops below a certain limit. Since most college students are armed with smartphones and laptops, mobile banking features are one way to avoid overdrafts and lessen the reliance on needing to be physically close to a branch.

Manage your money when it’s convenient for you – access account information and make transactions from a mobile phone, keep track of your account records and know exactly how much money you have left after all pending transactions have been recorded.

Remember that a college computer labs, libraries and dorms are rarely secured locations and it may not be a good idea to be banking online in a public location. If you must, always remember to log off when you leave an online banking site. Keep all of your account information protected with strong passwords and store any physical banking records in a well-hidden and locked container.

Students Need to Automate Savings Now

In addition to mobile banking, students should look for the ability to automatically save money from deposits or make scheduled transfers from the checking to savings account at regular intervals. This account feature can help young adults build up an emergency fund or get set for life after college.

You may also want to consider putting that regular savings to good use, and pay down your student loan interest to avoid bloated debt upon graduation.

Save to Pay Off Your Student Loan Interest

Use your new student bank account to proactively decrease the amount of debt you owe by paying off student loan interest while in college. While many unsubsidized student loan agreements allow students to skip making payments while in school and/or for the first six months after graduation. choosing not to make payments will allow the interest on that loans will accrue and capitalize when the loan enters repayment. Compounding interest means the total loan and you monthly payments will be greater at the time the loan becomes due. Choosing to pay off at least the interest of your student loans while in school will save you money over the life of your loan.

Choose a Banking Institution for Life

Remember when I said to keep your longer financial goals in mind when choosing your college bank account? Well, there is a good chance you will become a customer for life with the bank you choose. Whether by the saving and loans perks of membership in a credit union or the investment and convenience of a commercial bank, most people stick with their first bank. So if you need to plan for buying a car, taking out a home mortgage or financing graduate school, keep these long term goals in mind to ensure financial success after college.

Who knew you’re bank was going to be such a crucial step of going to college?

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About Amanda Jensen

FSN college advice columnist - Amanda gives parents and students knowledgeable advice on college planning, tuition financing and scholarships. With up to date and accessible information covering everything from personal finances to federal government policies, she is determined to make the college experience a painless one for all party's involved. You can find Amanda on !

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