August 1, 2016 in Checking

Student checking accounts: How to find the best bank

It’s just Banking 101: Students are great for business at banks and credit unions. When a high school or college student opens a checking account at a financial institution, there’s a good chance he or she will become a customer for life.

To provide an incentive to open an account, many banks and credit unions offer student checking accounts that give extra benefits to young adults who are just starting their financial journey, says J.J. Montanaro, a CFP professional at USAA in San Antonio.

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For example, students who offer proof they’re enrolled in an educational institution by showing a school-issued ID can open up student checking accounts with a low minimum balance, minimized fees, free online bill pay, free ATM use or ATM rebates, free checks, and mobile deposits or transactions, he says.

Montanaro believes it’s worthwhile to search for a bank that’s a good match. “Parents should work with their kids to research and pick a checking account. There can be a lot of costly details in the fine print, so it pays to understand what you’re getting into,” he says.

Here are 5 basic student checking features Montanaro and other financial experts say students should look for before opening an account.

Students don’t often have a regular source of income, so it’s important to make sure their balances can go low without penalty, says Ken Cyree, a professor of finance at the University of Mississippi.

Customers should look for a student checking account that doesn’t charge fees if the balance drops below, say, $500, he says. Of course, all this assumes the account is never overdrawn. “If you bounce checks, the fees will add up,” he says.

As an alternative, some banks will require a minimum balance to open an account — such as $50 — but then won’t require a minimum amount to maintain the account, Cyree says.

Search for student-centered accounts that have no monthly fee and offer free checking and debit cards, Montanaro says. But, before opening an account, make sure you know whether the “free” account comes with any extra charges that may be assessed, and how to avoid them.

“Look at fees for the services you are going to use, things like out-of-network ATM withdrawals, and scrutinize the penalties associated with any missteps,” Montanaro says.

Having no monthly fee is a good thing, but you don’t want to end up paying for it in other areas, he says.

A new checking account could be a student’s first foray into budgeting and that could mean costly mistakes in the form of overdrafts.

When that happens, there’s usually a fee for nonsufficient funds, or NSF, averaging more than $33, according to Bankrate’s most recent survey.

“Overdraft and insufficient-fund charges can quickly turn a small purchase like a cup of coffee into a 4-course meal,” says USAA’s Montanaro.

To help reduce these fees, many banks allow student checking accounts to link to another savings account or line of credit as a backup.

The bank may charge a fee to make a transfer and avert an overdraft, but it would likely be much smaller than an NSF charge, the University of Mississippi’s Cyree says.

Using backup accounts can be helpful, but students should be careful not to feel a false sense of security, he says. Otherwise, it could lead to another potential problem from young adults: the misuse of credit.

“We don’t want to give our college students such a large safety net that they’ll feel it’s OK to continue to make the same financial mistakes,” Cyree says.

Student checking accounts generally feature online bill pay, mobile deposits, online statements and the ability to set up text and email alerts if the balance drops below a certain limit, Montanaro says.

These features lessen the need to be physically close to a branch. That’s important for students, especially if they live in one town during the school year and somewhere else during the summer.

“Most college students today have a smartphone and that’s a great tool to access and track their account information. They have the power to track spending, transfer money, deposit checks and monitor account balances at their fingertips,” Montanaro says.

In addition to mobile banking, students should look for the ability to set up a schedule to automatically move money from one account, such as checking, to another, such as savings, at regular intervals, says Casey Weade, a CFP professional and president of Howard Bailey Financial in Fort Wayne, Indiana.

This feature can help young adults build up an emergency fund with little effort. “Being able to set up automatic transfers online is a benefit for someone who is trying to save money,” Weade says.

Students should look at the location and ease of access of a bank when choosing a student checking account, Montanaro says. This includes selecting an institution that has ATM locations on and around campus so students can avoid out-of-network ATMs and their high usage fees, he says.

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In many cases, convenience for students can mean choosing the same bank as their parents. That would make it easier to receive deposits from Mom and Dad, Weade says.

That’s exactly what he did in school. “My parents took me right into our bank branch to open an account,” he says.