There are two types of financial accounts commonly used by students: checking and savings.
Checking Accounts - As the revolving door of your financial life, a checking account is where your income comes in and your expenses go out. In fact, we suggest keeping only one month's expenses in your account at any time. As we will learn in a moment, keeping your extra cash in a linked savings account can be a good strategy for maintaining your spending plan, avoiding fees, and for earning interest.
To keep the cost of your checking account as low as possible, here are some points to consider:
To keep checking account fees as low as possible, make sure you understand the circumstances in which add-on or monthly fees would be charged. Are you limited to a certain number of debit or ATM transactions per month before additional fees would be charged? What does it charge for using another bank's ATM machine? Is it easy to opt out of high fee services like courtesy overdraft protection? Avoidable service charges could cost hundreds of dollars per year if you're not careful.
Financial institutions typically offer several checking account plans with different interest rates, fees and minimum balance requirements. The best choice for students is often a no-fee student checking account - just be sure to read the fine print about transaction limits and add-on fees.
As the account you use the most, it really pays to understand how to get the most from your checking account. If you are unclear on the basics of balancing a checkbook, writing checks, and related topics, we offer a separate module to get you up to speed.
Savings Accounts are the other type of account commonly used by students. Many of you opened savings accounts as kids as a safe place to keep cash gifts or earnings from odd jobs. But savings accounts can be a powerful tool for helping you manage your money, even as an adult. They earn some interest without the risk of increased checking account fees, and can even help you stick to a budget.
Here are some good reasons to consider a savings account:
Savings Related Accounts - Money Market Accounts and Certificates of Deposits
If you have a substantial sum of money that you will not need for a few months, there are a couple of savings options to consider. Money market accounts are similar to savings accounts, but they tend to offer higher interest rates. The disadvantage of these accounts is that there is often a minimum balance required - typically $5,000 or more - to receive significantly better rates than savings accounts. If your balance drops below the minimum, you may be charged a fee or have your interest rate reduced.
Certificates of deposit (CDs) are another option that may be a better strategy for most students. CDs pay comparable interest to money market accounts, but have lower investment requirements - often just $1,000. CDs do require, however, that your money is committed for a specific period, from one month to several years. If you need your money before the end of the term, you will pay a penalty that, in certain circumstances, could leave you with less money than you started with. Be sure to understand possible penalties completely before committing to a CD.