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Student Banking 101

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Choosing your first bank account is an important decision. Unlike that first school ID photo, your first banking relationship could last long after you graduate. Making a smart decision now will mean fewer surprise fees that can add up later.

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1. Choose an account as soon as possible. You should try to find an account before you start school. Don’t feel limited to only the banks or credit unions that have ATMs on or near campus; some will automatically reimburse fees for using any ATM. Consider accounts that offer services like remote check deposits, mobile apps, and online bill-pay. Signing up for a bank account now can save you headaches later, and researching accounts with the lowest fees can save you money.

2. Avoid paying unexpected fees. Dig deeper when accounts are marketed as “free” or “easy” – very few accounts charge no fees at all. Does your bank charge monthly fees? Many require minimum balances or regular direct deposit to avoid monthly fees. What about out-of-network ATM fees, overdraft fees, fees to use your debit card, and fees for services like online bill-pay? Knowing if and when fees will be charged could save you hundreds of dollars in fees each year. While half of young Americans never overdraft, the other half average approximately seven overdrafts a year. Overdrafts can cost more than $30 each, so that’s potentially a lot of money taken out of your pocket.

3. Sign up for direct deposit as soon as possible. Once you have a bank account, sign up for direct deposit with your school before classes start. If you are expecting money from your financial aid office, you’ll often get it faster this way – it can be weeks before the school gets to writing you a paper check.

Choosing a bank account

You have many bank accounts options. Here are are three possibilities and key factors to compare when making your decision.

Virtual checking accounts Student checking account School-affiliated banking services
How it works
Some financial institutions provide exclusively online banking services that are comparable to a traditional checking account Some banks and credit unions offer student checking accounts with discounted fees to establish long term relationships with new customers Many colleges have a bank they partner with to offer students campus affiliated checking accounts or prepaid debit cards
Benefits
May waive or reimburse ATM fees, even those for out-of-network ATMS

Often include online banking and bill-pay

Often have mobile apps for things like remote check deposit

Often won’t let you overdraft your account

Free access to in-network ATMs

May include online banking and bill-pay

Access to traditional in-person bank branches

On-campus branch locations and ATMs

May include online banking and bill-pay

May offer discounts at local or campus businesses

Sometimes your student ID card can be used to access your money

Risks
Generally do not have in-person customer service options Possibly charge monthly maintenance fees – up to $12 a month in some cases – if you don’t meet the minimum balance or the bank’s other enrollment criteria, like maintaining a full-time enrollment status at school

May charge more than $30 per overdraft, which can add up quickly, especially if you opt in to coverage for ATM and debit card overdrafts

Could charge fees every time you use your debit card

Don’t always provide the ability to write checks

May charge inactivity fees each month for not using your account frequently

Possibly charge monthly maintenance fees – up to $12 a month in some cases – if you don’t meet the minimum balance or the bank’s other enrollment criteria, like maintaining a full-time enrollment status at school

May charge more than $30 per overdraft, which can add up quickly especially if you opt in to coverage for ATM and debit card overdrafts

What is an overdraft fee and how can I avoid them?

When you spend more money than you have in your account, your bank will likely charge you an overdraft fee. So a $4 cup of coffee can end up costing you $35 or more. You can be charged several overdraft fees in a single day and even more in extended overdraft charges if your account remains overdrawn for a few days, so be careful – these fees add up quickly.

To avoid paying overdraft fees, monitor your accounts carefully and consider:

  • Not opting-in to services that pay for overdrafts connected to ATM or one-time debit card withdrawals
  • Linking your account to a savings account – you may still pay a fee for transferring funds from your savings account, but it is usually much lower than an overdraft fee
  • Choosing an account that does not allow overdrafts

Accessing your financial aid

After your school takes out the cost of tuition, fees, and any on-campus living expenses from your total financial aid award, there is often money left for you to use for other expenses, like books. You normally have several options for how you get that money, including direct deposit to a bank account, to a card that might also double as your student ID, by check, or cash.

We recently published an advisory to consumers about financial aid disbursements, and we encourage you to choose your disbursement option wisely. They all have benefits and risks, so the most important thing is that you understand your needs and what potential fees you will be charged to use each option.

Direct deposit to personal account Paper check Financial aid disbursement account
How it works
Once you choose the best bank account for you, share that information with your school, and they will deposit additional aid funds directly to that account Schools generally must offer a paper check or cash option no later than 14 days after the funds are available A school may partner with a bank or another third party to handle financial aid disbursements

The most common option is a debit card attached to bank account that has your financial aid deposited in it

You are not required to use the bank chosen by your school

Benefits
You can pick an account that offers what you need and charges few or no fees

You can access the disbursement quickly with direct deposit

You can deposit your money into the account of your choice and do not need to provide additional personal financial information Often the quickest way to access to your disbursement if you haven’t already provided your school with direct deposit info
Risks
No significant risks If you use a check casher, they may charge as much as 4% of the check amount

You may not be able to access your funds immediately after making a deposit

The school makes the agreement with the bank, not you

You won’t be able to shop for a low-cost product, and these cards and accounts may come with fees you could avoid by shopping

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  • Auslander

    Opening an account before turning 18 may be adventageous as well, the reason being that some banks have higher interest rates for accounts for minors than their other accounts offered. In Southern California, Universal Bank’s ‘Kiddie’ account offers the best rates for us common folk that don’t have $100k+. I don’t know the finer details, so I don’t know if the rate changes upon turning 18.

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