Guides to Banking for Students

In the excitement and barely controlled chaos that is the transition to college for many students, banking and finances often get short shrift. Much thought is given to the big financial picture of paying for tuition, room and board, with little care going into the actual day to day expenses (pizza, beer, unexpected books, etc.) that come as part of the college life. This would be acceptable if most students were adequately prepared to handle their money and expenses, but sadly this is not often the case.

An integral part of managing money well as a student is getting set up with the right account at a good bank. But what constitutes the “right” account, and what makes a bank “good”? Many students will have a joint savings account with their parents at their parents bank before going to school. If that bank has branches near the college, it can make the choice much simpler. Open a checking account, link it to the savings for overdraft protection, and voila!

If, however, the parent’s bank does not have a presence near the campus the task can be more difficult. Having a local bank account is very important! For one, it allows access to atms without paying extra fees. It can be easy to shrug off the dollar or two that most banks charge for using other banks’ atms, but when you add the surcharge the atm will almost certainly charge too, suddenly your weekly cash withdrawal is costing an extra $4-5! This can add up fast for cash strapped students.

In selecting a local bank, first be sure that you get an account with no minimum balance or monthly fees. Some banks offer “student” accounts, but these are usually just different names on the standard free checking account. Be sure to look at the branch closest to campus, since different branches can have very different “atmospheres” and it is important to find a branch with staff that you are comfortable with.

It also pays to look at what overdraft options are available. It is a common misconception that since debit cards withdraw directly from your checking account, then if the card is not declined you must still have money in your account. This is NOT the case! Nearly all banks allow at least some level of overdraft when using a debit card, and some banks allow essentially unlimited overdrafts for a short time before revoking the card. With an average charge of over $30 for EACH item that overdraws the account, one weekend of fun can easily put students in a hole they can’t climb out of.

The best way to avoid this situation is simply not to use a debit card. I always recommend using a student credit card with a reasonable limit. This allows students to begin building credit while also keeping expenses together on a single payment each month, which is much easier to keep track of. If a credit card is not an option, cash is another alternative that prevents costly overdraft fees. Only if nothing else is available or acceptable to a customer would I recommend a debit card.

For students (or parents) who insist on a debit card in spite of this, getting overdraft protection and keeping a very close eye on the account are absolute requirements. Free internet banking is becoming nearly universal, and is a great way to keep a daily watch on an account. One caution: though internet banking does update quickly, it is not always accurate up to the minute and should be used to keep a “ballpark” estimate of your balance, not a penny-by-penny reckoning.

Overdraft protection generally comes in two forms: credit line, or deposit-to-deposit. For credit lines, there is generally an application to fill out, with approval and amount usually dependent on overdraft history and credit score. If you are approved, the credit line is attached to the account to pay any overdrafts that may be incurred. There is usually an annual or monthly fee, and interest charged on any balance kept on the credit line, but no fee for using the credit line. Deposit-to-deposit overdraft protection on the other hand simply links the checking account with a savings or money market account at the same bank. Funds are then transferred from that account to cover any overdrafts. There is usually no cost to set up this type of protection, but a fee is incurred for each use.

College can be a stressful, as well as exciting time for students. Getting set up right away with the right account at the right bank can help take “money” off the list of stresses, so students can focus on learning and having fun!