Going to college can be expensive, so avoid paying elsewhere, like your bank account.
According to a 2022 Consumer Financial Protection Bureau report, more than 668,000 students paid nearly $15.5 million in bank account expenses in one year, an average of nearly $26 per person. What’s worse is that some colleges support costly bank accounts as part of their partnerships with banks.
“Don’t assume that your college or university will get you a good deal because your college or university partners with a bank,” Aaron Klein, a senior fellow in economics studies at the Brookings Institution, said in an email.
Before you head off to college, consider what factors you need for a college checking account. There is no grade for this, but the wrong bank can be expensive.
DECIDE WHAT FEATURES ARE IMPORTANT
Checking accounts work similarly at every bank, but some features vary or aren’t available at every bank, including branches, highly rated mobile apps, certain account fees, and perks like direct deposit up to two days in advance.
Decide beforehand whether you need a bank that offers joint bank accounts to share finances with a parent and whether you want credit cards or other borrowing options in the same place.
The largest banks generally have robust apps and large branch networks, but their account fees can be high. In contrast, regional banks and credit unions — the non-profit counterpart of banks — may have lower fees and are more community-focused, but have fewer branches and may lag behind in technology. Online banks may have minimal fees and quality apps, but they often lack a branch network and the ability to deposit cash is not guaranteed. Nationwide access to ATMs is usually available at credit unions and online banks via shared networks, but they may not be as easy to spot as ATMs from major banks.
Don’t just limit your options to accounts marketed as “college checking,” though. You might miss out on the banking features you want.
CHECK FOR CHARGES
Watch out for fees for monthly maintenance, ATM usage, and overdrafts. You can often avoid a monthly fee, say $5 or $10, by having a certain minimum balance or direct deposits into your account — or by finding a checking account with no monthly fees. Using an ATM to withdraw cash outside of your bank’s network can incur a fee of around $2 to $3 at your bank, as well as a fee at the ATM operator. And overdraft or underfunding fees can be $30 or more per transaction and apply when a payment takes your balance below zero.
Carla Sanchez-Adams, senior attorney at the National Consumer Law Center, recommends looking for certified Bank-On accounts that don’t incur overdraft or NSF fees. Transactions that would bring an account balance below zero will be rejected instead. In addition, screening practices may apply to these accounts, even for accounts with less banking experience.
You may be required to pay fees for some services, such as the issuance of a check book. “Not every account will be completely free,” says David Rothstein, senior principal at the Cities for Financial Empowerment Fund, which manages Bank On, the CFE Fund’s national platform that promotes financial inclusion.
ACCOUNT SECURITY FACTOR
There have been three bank failures this year. While bank failures are rare, federal deposit insurance protects your money. If a bank fails, you get up to $250,000 of your money back. Banks are protected by the Federal Deposit Insurance Corp. insured, and credit unions enjoy appropriate protection through the National Credit Union Administration.
But it’s more complicated with bank accounts at newer financial technology companies like Chime and Current, and debit cards at companies like PayPal’s Cash App and Venmo. These companies typically work with banks to provide “pass-through” FDIC insurance on their accounts. However, when these businesses fail, getting your money isn’t as easy as it is in a bank. This uncertainty is one of the reasons why tech company accounts are not eligible as Bank-On accounts.
“It’s true that many fintechs have behind-the-scenes relationships with banks, but that’s never really been tested,” says Rothstein.
Beyond FDIC insurance, look for multi-factor authentication in banks’ mobile apps to increase account security. Also, make sure a bank provides monthly statements and spending alerts so you can monitor transactions and flag transactions that appear fraudulent.
Go beyond checking when you’re ready
Once you have a checking account for college, consider a savings account for money you don’t have to spend next month. Check if your bank offers secured credit cards or credit-building loans. This can be a good step in determining your creditworthiness. Secured credit cards usually require a cash prepayment of your loan amount, while credit enhancement loans require all payments to be made prior to receiving the entire loan amount.
This article was provided to The Associated Press by personal finance website NerdWallet. Spencer Tierney is a writer at NerdWallet. Email: [email protected].
NerdWallet: What is FDIC Insurance and What are the Coverage Limits? https://bit.ly/nerdwallet-fdic-insurance
Consumer Financial Protection Bureau: College Banking and Credit Card Agreements: Annual Report to Congress, October 2022 https://files.consumerfinance.gov/f/documents/cfpb_college-banking-report_2022.pdf
Bank On: Bank On National Account Standards (2023-2024)