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It’s back to school time! Which means it’s also time for college students to get serious about how they manage their money.
If you’re like most parents, you recognize the importance of starting your grad off on the right foot with a basic checking account that allows them to store and allocate their funds for different expenses as they learn how to properly manage funds on their own.
However, choosing the right checking account is not as simple as driving down to the local bank and signing up for the option with the lowest service charge — especially for those who have never managed money before.
To help you make sense of it all, we’ve put together a few tips for picking an account that is right for your student and won’t break the bank!
Big Banks
The larger national banks have the benefit of name recognition and greater accessibility. You can access them almost anywhere, including nearby branches, grocery store kiosks, or on-campus locations. This makes it easy for parents to quickly make deposits and for students to access cash when they need it.
On the downside, many larger institutions have stopped issuing free checking accounts. Additionally, ATM fees are on the rise for everyone. So, be sure to check the fee schedule to see how much the account will be charged for going below the minimum balance or for making ATM withdrawals.
Community Banks
Local community banks continue to compete favorably with the big banks. Many of these banks still offer free checking to maintain and grow their client base. There are often fewer branches, but this means that you stand a better chance of getting to know the employees. When the employees know you and form a professional relationship with you, it can be easier to transact business.
So, if your student goes over their checking account limit, a quick phone call may help resolve the issue. Since there are not as many branches and ATMs available, community banks will often waive fees for using foreign ATMs. This helps alleviate the inconvenience factor and save money on withdrawal fees.
Credit Union
As member-owned cooperatives (as opposed to for-profit entities), credit unions may offer higher interest rates on deposits as well as no-fee accounts. As with community banks, fewer branches and ATMs often means lower fees for ATM usage.
One caveat is that you may need to be affiliated with a “field of membership” such as a specific employer, church, school, or community. Ask your family to see if they have a relationship that would qualify you to use a credit union.
Online Banks
Online banking began with the technical revolution in the 1980s and has greatly evolved since then. While many brick and mortar banks have an online presence, there are several FDIC-covered institutions that operate exclusively in the cloud. The lack of a physical branch system is actually one of their greatest strengths. Without the overhead, they can pay higher interest rates on checking and savings accounts.
Most online banks offer direct deposit and no-fee ATM usage, as well as 24/7 service. The Gen Y and Gen Z crowd is used to having an internet connection, so it will also make sense for younger students who are accustomed to doing almost everything online.
The downside here is the disconnect between money earned and money spent.
A “new” account holder needs to see a check, make a physical deposit, write checks, and use the ATM to really understand how to budget money. If they don’t, the numbers are intangible and there is a greater chance that your student will not learn to manage his or her money well.
When money “magically” appears in an account, it is just as easy for it to “disappear.”
Choosing the Right Account for Your Student
As your child goes off to college, whether it is across town or across the country, work with him or her to decide which services will be most important. Banking rules and regulations often change, so be careful to check the fee schedule and ask your Customer Service Representative if they know of any upcoming changes that may affect the account.
Our society has become very accustomed to free banking services, but remember that banking is a privilege, not a right. Many banks charge fees for smaller accounts that used to be free. If all of their pizza money.
Helping your child establish their banking relationship and giving them the tools and expectations they need will make the transition smoother as your student begins managing their own funds.
Pathfinder Planning LLC is a registered investment advisor in North and South Carolina. For more information, visit www.pathfinderplanningllc.com.