How Student Banking Works

Student Banking: Checking Accounts

For many college students, paying bills is a new thing. You're on your own for the first time and will have to pay for a place to live, food, books and more. The easiest way to handle this is by opening a checking account. Almost every bank offers a student checking account -- think of it as a starter account -- that waives various fees and charges in an attempt to get your business. (Hint: Don't go for the free iPod -- hold out for important perks like waived fees instead.)

Up front, there's the matter of the monthly fee, which most checking accounts carry, but banks often waive for student accounts. There's also the minimum balance requirement. Sure, we'd all like to have a reserve of money, but sometimes things happen, especially if your income is limited to a part-time job and the occasional care package with a $20 bill tucked inside. Most student accounts come with a "no minimum balance" rule, too.

If those were all the charges associated with having a bank account, the banks wouldn't need all the fine print, and in some ways, the monthly charges and the fee for dropping below the minimum balance are the least of your financial worries. In the old days, choosing a bank was easy -- there was a bank nearby, and you opened an account there. But with ATMs and online banking, location matters much less than it used to.

Check the bank's agreement for fees associated with online banking, including bill paying and transfers between accounts. Find out where the bank's ATMs are located. Are they convenient to campus? On campus? Close enough that you'll be willing to walk there even if it's snowing? Keep in mind that there are charges for using ATMs that don't belong to your bank, not only from the owner of the ATM, but also from your bank. Some student offers include a certain number of out-of-network transactions a month, but remember the ATM owner will still charge you something, and those fees can add up.

The biggest threat to your financial well being, though, comes from overdraft fees. When you spend more money than you have, the bank covers it for you, but it charges a fee, sometimes as much as $35. If you keep charging, so will the bank, up to a daily maximum limit. (For how overdraft rules are changing under federal law, see the sidebar on the following page.) Look for a student account that limits overdraft fees, or better yet turns off overdraft protection entirely. It may be embarrassing to have that card turned down for a small purchase, but it's nothing compared to the feeling of getting hit with several hundred dollars in fees for something you could have done without.

Some banks offer the option of linking multiple accounts for overdraft protection, so if you don't have enough money for that skinny cinnamon dolce latte, they'll transfer some from a savings or credit card account to cover it. Those transactions can still put you over the savings account transfer limits, though, so you can end up paying fees for the transfer.

Speaking of savings accounts, let's take a look at those next.