What college students -- and parents -- need to know about banking
Nevertheless, using prepaid cards as a primary financial product is not a good idea for college students or most anyone else. For example, the American Express Campus Edition card, available in 500 campus bookstores nationwide, charges high fees of $2 per ATM withdrawal (with one free per month), won't send you a monthly statement, and offers usage limits too low for most students -- cardholders can only load $1,000 cash on the card each month.
The Consumer Financial Protection Bureau, the federal regulatory agency to protect consumers, is accepting public comments right now on a rulemaking process for colleges to ensure that they offer students enough freedom to choose the best financial product. The FDIC even ordered Higher One, the biggest company marketing campus-branded debit cards, to repay $11 million in unfair and deceptive fees charged to students. In the meantime, here are some tips students and other young adults should keep in mind when starting their financial lives.
--Skip the swipe card. Just because your school offers a branded student ID, it doesn't mean you have to use it as your primary debit card. Keep it in your wallet and use a real debit card instead.
--Shop for a free checking account. Most major banks offer free checking accounts to college students. Some students might prefer online banks such as E-Trade or ING, which usually allow free use of any ATM. There are many advantages to opening a full-fledged checking account rather than relying on a prepaid card. The accounts are federally insured, they help build a healthy credit rating, and they offer more usable features than most prepaid cards, such as online and mobile access and statements.
--Consider a campus credit union. An August 2012 survey by the blog NerdWallet found that campus credit unions had lower fees, more ATMs near campus and better perks for students than the big banks. If your college has an affiliated credit union, it's probably a great choice for banking -- and you can keep your account after you graduate.
--Ask for your financial aid to be direct-deposited. Once you have a real checking account, the Consumer Financial Protection Bureau recommends that you ask your college financial aid office to direct-deposit your financial aid. This allows you to get the money as fast as possible and reduces the risk of accidental overdrafts.
--Add a credit card that is low cost or offers rewards. Since the Credit CARD Act of 2009, credit cards are far less available to students, which is a good thing because it prevents people getting in over their heads in debt. Still, it's a good idea for most college students to get one credit card to build a credit rating and to have in case of emergencies. If you are under 21, you will either need to get a parent to cosign for this card or show some proof of independent income.
If parents are all right with cosigning, and they have good credit ratings themselves, it can help students build good credit. In the best-case scenario, students will pay off this card every month, in which case they should shop around for the card with the lowest fees and interest rates. Bankrate.com and Credit.com are two places to look. If students are carrying a balance every month, it may make sense to sign up for a rewards card. Discover is one name that appears on many lists of best student reward cards.
(Anya Kamenetz' latest book is "DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education." She welcomes your questions at firstname.lastname@example.org)