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From checking accounts with overdraft protection to savings accounts, there are a few banking strategies you can use to make the most of your money.
Module Transcript
There are two types of bank accounts commonly used by students: checking and savings.
- Checking Accounts - This is the account you'll use the most. Every student should have a checking account that includes a debit card. Why? First, you'll need actual checks for expenses such as bills and tuition. Checks also help you keep track of your spending while forming good accounting habits. Checking accounts also offer debit cards, which are a convenient alternative to credit cards for everyday purchases.
- Savings Accounts - Savings accounts are a good option, especially if you get a lump sum of money each semester from your parents or from student loans. Think of it this way - if you get money in August that has to last the whole semester, why risk being broke in October by spending all of it at once? A savings account will help you set a monthly budget that you can stick to - just transfer the amount you need each month into your checking account. Saving accounts also earn some interest without the risk of increased checking account fees.
Many banks have special "student accounts" that charge no fees and offer free checking and ATM use.
Choosing a bank with the right kind of accounts is just the first step - you then have to manage your accounts and keep track of your deposits, withdrawals and other transactions.
Your bank will send you a statement each month that lists all of your transactions and tells you how much money you had in your account at the beginning of the month, and how much you had at the end. The statement also lists all of your deposits and withdrawals for the month, as well as any interest or fees associated with the account. Save these statements - you many need them for taxes or for financial aid.
Check your statement when it arrives to make sure that it is correct. You'll want to balance your checkbook - that is, compare the deposits and withdrawals to your checkbook register and also to your receipts from debit card purchases and ATM withdrawals. If the amounts or transactions differ, determine if you or the bank made a mistake, or if an unauthorized person is taking money from your account.
One of the biggest changes in recent years is online banking. Most banks now offer online services that give you easy access to your account information, in addition to helpful services such as online bill payment, balance transfers, and email alerts when your balance gets low. Because online banking can help you manage your account by offering real-time access, it can help you avoid bounced checks and other fees. We recommend online banking for all students.
Some students keep the same bank account they had in high school, and continue having the statements sent to their parent's home. There's nothing wrong with doing this - studies have shown that students have fewer financial problems when their parents are involved with managing their accounts. However, we do recommend that you receive a copy of the statement at school or at least regularly login to your online account - not only will it help you manage your money, it will help you spot fraudulent transactions that your parents may not recognize.
An overdraft (or "bounced check") occurs when your account lacks sufficient funds to cover the checks you've written. For instance, you may write four checks totaling $150 when you only have $100 left in your checking account. To avoid the charges (up to $50+ each time) and embarrassment of bouncing checks, banks offer overdraft protection, which is either free of charge or costs a modest fee (about $1 to $3 per month).
Overdraft protection is a line of credit - like a credit card - linked to your account. When you overdraw from your checking account, funds from the line of credit are transferred automatically, usually in increments of $25 or $100. Of course, the bank simply charges you interest on the amount that has been borrowed from your line of credit, and typically the interest rate is high, so you should pay off the "loan" as soon as possible. To obtain overdraft protection, you must have your credit checked and be approved by your bank. You may also have to get a parent to co-sign, meaning they take responsibility if you fail to pay any charges, since overdraft protection is considered an unsecured line of credit.
Whether or not you should get overdraft protection is really up to you - if you track your spending regularly you won't need it. Some people will use the service as intended, while others will use it like another credit card, resulting in more debt.
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