If you are in college or know someone who is, be careful about the student banking accounts you set up. A wrong move could cost you unnecessary fees and even give you bad credit. Some banks prey on students because they think the kids don’t pay attention. Not on my watch Pilgrim.
Let’s start at the beginning. What is a checking account and how is it used? If you are about to start living on your own for the first time, you need a checking account. A checking account allows you to buy what you need without walking around with huge gobs of cash dripping out of your pocket.
Basically, you deposit money into your account. Then you can write checks against those deposits. So, if you deposit $100 in your account, you can write checks up to $100 to pay for things you need. This is different (and better) than a credit card. When you use a credit card, you are actually borrowing money. When you write a check, you are using your own money.
Track your finances.
No matter where you open your account, it’s crucial that you keep track of how much money you spend and how much money you have left in your account. If you don’t, you might spend more money than you have in the account. And if you do this, you’ll make some people rather upset and you’ll wreck your credit.
It will also cost you a fortune. Here’s what happens. First, the person you wrote a check to (for which there is no money) will have the check returned from her bank after she deposits it. That merchant will be charged fees and she’ll come after you for those charges. Your own bank will charge you fees also. These are called “NSF Fees” – Not Sufficient Funds Fees. This is generally a very bad way to start your financial life.
Keep on top of your balance.
You do this by simply keeping notes of deposits and withdrawals (the checks you write) in what’s called the check register. This is a cute little notepad that’s included in your checkbook. Every time you make a deposit or write a check, make a note of it and update your balance. It’s also really important to reconcile your account at the end of the month. This way, you’ll know how much money you have in your account.
Get a free checking account.
Most banks have special offers for students, people in the military and other people who might keep low balances. Often, these accounts offer free checking.
You definitely want a free checking account because the fees associated with other accounts will eat you up alive. When you waltz into the bank, make sure you have proper ID. Have your Social Security number and your driver’s license or state ID. You might even bring a utility bill to prove where you live.
Know your credit score before you open the account.
Understand that the bank is going to check your credit before they agree to open an account for you. Why?
Because they don’t want to give checking accounts to people who write checks when they don’t have money to cover them. You should also check your credit score before you try to open an account to avoid nasty surprises.
Understand the minimum.
When you open your account, you’ll be required to make a deposit. You’ll either bring in cash or deposit a check. You will need to keep a minimum balance in the account or you’ll be charged a monthly maintenance fee. Make sure you understand what the minimum is so that you’ll be able to keep that amount in your account.
Order checks online.
The bank will offer to sell you checks, but they are usually expensive. You can save money by ordering checks online. Simply do a search on ordering checks.
Ensure access to data.
Another critical thing is data. Make sure you’ll be able to download data from your bank. I’m a huge fan of budgeting software and the easiest way to keep your budgeting software up-to-date is by downloading the data. You don’t have to be an expert at this right now; all you have to do is make sure your bank enables you to download data.
Another important tip is to select a bank that is FDIC-insured. That’s to make sure your deposits are safe even if the bank goes out of business.
Also, make sure you have access to your cash. You’ll probably be offered a free ATM card. This card will allow you to go any ATM machine anywhere in the world and withdraw cash. That’s great…but make sure you ask about the fees associated with these withdrawals. Some banks allow free ATM withdrawals even if you use ATMs of other banks. But other banks charge you an arm and a leg every time you use the ATM. This is important because you’ll probably use your ATM more often than you’ll go into the bank to get your cash.
You might also consider opening your first checking account online. It’s certainly quicker and cheaper.
For my money, I think it’s nice to have a bank you can go to. Colleges usually work out some great deals for students. They force the banks to bend over backwards for their students in return for the school’s permission to do business on campus. Take advantage of that by first checking out the local bank on campus before you make any final decisions.