A Crash Course in Money Management for Your College-Bound Kids

When it comes to bank accounts, the cost of newbie mistakes adds up fast. For example, overdraft charges, at about $35 a pop, can quickly put your freshman in the hole. But parents can help students make smart choices about overdraft programs, plus steer them to accounts that don’t charge maintenance or low-balance fees. You can also help them set up text alerts so they don’t miss a payment or overdraw. “The experience of banking wisely is something you can learn in college without paying for the course,” says Richard Barrington, of MoneyRates.com.

Checking Accounts

Free checking is quickly becoming ancient history, but some banks still waive fees for students. U.S. Bank and Citibank offer free student checking and allow free out-of-network ATM withdrawals (though U.S. Bank limits them to four per month, and outside banks may charge their own ATM fees). Bank of America also offers free checking. After graduation these banks funnel you into non-student accounts. Other banks waive fees if you, for example, maintain a minimum balance or make one direct deposit each month.

Overdraft charges are a big drain on young-adult accounts. If you opt in and use your debit card or go to the ATM without cash in your account to cover the transaction, the bank fronts you the money—but you pay a stiff penalty. Many banks let you link a checking account to savings as a backup, typically for a fee of about $10 per transfer if you overdraw. Or you can simply choose to let the transaction be declined. Embarrassment at the register can be a powerful motivator to improve balance tracking.

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Savings Accounts

Online banks usually offer better interest rates than the big brick-and-mortar banks. Barclays online bank recently offered 0.9% on savings with no minimum balance or fees, and Ally Bank paid 0.84% with no minimum or fees. If self-control is an issue, try stashing money in a separate bank. Otherwise, “it’s too easy to click a button and move your money from savings to checking,” says Erin Baehr, of Baehr Family Financial.

Credit Cards

Make a judgment call on credit cards. Having one can help students improve their credit score, learn to manage debt and pay for emergencies. But a debit card is better for spendthrifts and those perfecting money skills. Plus, the feds have made it tough for applicants younger than 21 years old to qualify, requiring that they have an income or enlist a co-signer. If you co-sign, you may be stuck holding the bill or sacrificing your credit rating if your student can’t pay. If a credit card is right, look for one targeted to students. The BankAmericard Credit Card for Students carries no annual fee. Applicants younger than 21 must demonstrate the ability to pay based on income, such as earnings from summer or part-time jobs, or apply with a co-signer.