Freshman banking 101: Checking accounts
The road to a college degree isn鈥檛 just about learning in the classroom. It鈥檚 about learning life skills, too, like managing your money.
If you鈥檙e off to college and just opened your first听, you鈥檒l enjoy the convenience it offers. Checking accounts can be handy for paying the monthly rent and for everyday expenses like groceries and all the ramen noodles you can eat. But with easy access to your money comes responsibility, like avoiding expensive bank fees when your account balance dips below zero.
Here鈥檚 a look at some account basics and听some best practices to minimize your costs and maximize your benefits when using your first checking account.
How a checking account works
A checking account at a financial institution allows you to put money in and then take it out whenever you want.
As听the name suggests, the听account can come with checks, which you write to buy goods or services or make payments. But most accounts also come with debit and ATM cards, which also provide access to your cash.
Many banks also offer the conveniences of online and mobile banking, such as听.
Tip 1: Avoid overdraft fees
Checking accounts can be fraught with fees. Most financial institutions, for example, charge a monthly fee just for maintaining your account, though you can also find banks and credit unions听. Some banks offer ways to waive fees, such as by keeping a minimum balance.
Among the steepest checking account charges are overdraft fees, which banks can charge when you don鈥檛 have enough money in your account to cover a transaction. The median bank overdraft fee is $34, according to the Consumer Financial Protection Bureau.
Some banks cap the overdraft fees they charge you in a single day to just one, even if you have several overdrafts. With others, if you keep making transactions after your balance drops below zero, you can听听of $200 or more in the same day.
Living on a college budget is hard enough; don鈥檛 throw your money away on expensive bank fees if you can avoid them. Know your bank鈥檚 policy on overdrafts, and check for ways to minimize overdraft fees or to prevent them. For example, some banks don鈥檛 charge for overdrafts if a checking account is overdrawn by $5 or less at the end of the business day.
Some banks won鈥檛 allow you to overdraw at all, but you鈥檒l incur a nonsufficient funds fee if a transaction is declined. A nonsufficient funds fee can run about $25 to $30, but the check recipient can also charge for the returned check, making for a pricey double whammy.
Banks also offer听, which triggers a transfer from a linked account, such as a savings account or credit card, when an overdraft occurs. A transfer usually costs around $10 or $12.
You can opt out of overdraft programs, but you risk incurring a nonsufficient funds听fee. The best advice is obvious: Don鈥檛 spend money you don鈥檛 have.
Tip 2: Monitor account balances
To avoid spending what you can鈥檛 cover, monitor your checking account balance regularly. If your checking account offers them, take advantage of text alerts or听听to keep real-time tabs on your balance.
Tip 3: Use budgeting tools
Of course, budgeting is a great way to take command of your finances. Tally up your account spending and deposits and keep them in line.
Check if your bank offers听.听, an online bank, offers customers a Safe-to-Spend tool, which factors in your bills and savings goals to show how much you can afford to spend without going into the red.
More features to use to your advantage
There are many best practices to use when opening a checking account. Here are three top features to make your checking account experience a positive one:
Interest checking. Checking accounts are known for paying low interest rates, hovering at most major banks around 0%. But some online-only banks offer听听with attractive annual percentage yields. With one of these, your account doesn鈥檛 just hold money, it can grow it.
Accessible ATM network. If having easy access to an ATM is important, you鈥檒l want to go with a checking account from a听. Use your bank鈥檚 ATMs or ATMs in its听network. Otherwise, you鈥檒l risk out-of-network ATM fees, which can add up. Look for a bank that refunds ATM fees or doesn鈥檛 charge for out-of-network use.
Mobile banking. If you鈥檙e the type who can鈥檛 do without your smartphone, consider the advantages of mobile banking, which allows you to take care of banking business anytime and anywhere, so long as you have an internet connection.
Among the most convenient time-saver features is the ability to deposit checks into your account with a smartphone camera. And with peer-to-peer payments, you can settle up tabs or bills on your smartphone simply by linking peer-to-peer service to your bank account. That鈥檚 using technology to your advantage.
Juan Castillo is a staff writer at NerdWallet, a personal finance website. Email: jcastillo@nerdwallet.com. Twitter:听.
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