Opening
A Checking
Account

If you don't already have a checking account, you'll probably want to set one up now that you're a student. It will make paying bills easier. But, before running out to the nearest bank, credit union, or savings and loan and opening an account, do some research first. It could save you money in the long run.

Start by identifying your banking needs. Ask yourself the following questions:

  • On average, how much money will I be able to keep in the account every month?
  • About how many checks will I need to write each month?
 
  • Do I want to go to the bank to get or deposit my money, or will I use automated teller machines?

What is the charge for each?
  • Would I prefer to pay most of my bills using online banking?
  • Will I use a debit card to pay for purchases?

Now that you know your needs a little better, take a look at the types of accounts that typically are available.

  • Basic checking
  • Interest-bearing
  • Express account
  • "No frills" account
  • Student checking
  • Money market account

With each of these types of accounts, you may be able to add an online banking feature. After learning more about these accounts, it's time to shop for the account that's right for you. If you do have a checking account, make sure you keep it healthy.

Basic Checking

A basic checking account works best if you can't keep a lot of money in the account on a routine basis. With most banks, you'll pay a monthly fee for the account. A small number of banks don't charge a monthly fee on their basic checking accounts. However, to get free checking, you often must do one of the following:

  1. use automatic deposit to put a steady paycheck into the account
  2. keep a minimum balance (often around $500 or $1,000) in the account (if your balance falls below the minimum amount—even for just one day—you'll pay a monthly fee)

Interest-Bearing Account

With an interest-bearing account, you earn a small amount of interest on the money you keep in the account. To avoid a monthly fee, you'll need to keep a rather high balance in the account—usually around $1,000.

Express Account

This type of account is geared for people who would rather bank by ATM, telephone, or computer. In general, there are low monthly fees on the account and you can keep a low minimum balance. If you have paychecks automatically deposited into this account, you might not pay a monthly fee at all. The account cost is low because you're not visiting a teller. If you do visit the bank and use teller services more

"No Frills" Account

No-frills accounts usually are for low-income people. The monthly cost of the account is low (ranging from zero to under $10). You also can keep a very low balance in the account. Typically, you can write only a limited number of checks each month on this account.

Student Checking Account

Some banks offer special checking deals to students. You may get a lower monthly fee, free checks, or other perks. The benefits of this type of account will vary widely from bank to bank.

Money Market Account

This type of account combines checking account features with investment opportunities. To open a money market account, you typically need anywhere from $1,000 to $10,000. You also must keep a high minimum balance in the account to avoid fees. You will earn more interest on the account than on a typical interest-bearing account, but you can only write a limited number of checks each month—often only three to five. In fact, a money market account usually has more restrictions than the other types of accounts.

Account Overdraft Protection

When you open an account, you may be encouraged to opt in for overdraft protection. With overdraft protection, you can write a check or buy something using a debit card for more than what is in your account. You may like the idea of not bouncing a check or having your debit card declined, but this "feature" is really a high-priced loan. Click here to learn more about the dangers of overdraft protection.

Protecting Yourself from Overdraft Protection

We all get busy and, sometimes, we may not know exactly how much money we have in our accounts. In that case, it's easy to write a check or make a debit card purchase for more money than is available. If you have overdraft protection, the bank will go ahead and allow the purchase. This may save you some embarrassment, but it comes at a cost. Consider this example:

You believe you have about $100 in your account; in reality, you have $50. During one day, you make several small purchases with your debit card. The first is for $5, the second is for $15, the third is for $12, and the last purchase is for $45. The next day, you discover your error, but you have overdraft protection and you think being $27 overdrawn is no big deal. But, here is how the bank is likely to handle your account.

At the end of the day, the bank subtracts your purchases from your balance. You may think that the purchases will be subtracted in the order that you made them (from first purchase made to the last purchase). That is wrong. Banks are allowed to subtract the highest purchase first.

Your bank subtracts the $45 from the $50 balance. Great, you still have a $5 balance… you're not overdrawn yet. But next, they subtract the $15 purchase from the $5 balance. You're now overdrawn. Then, they subtract the $12 purchase, followed by the $5 purchase. You're $27 in the red.

If you think that you'll pay one overdraft fee for that $27 amount, you'd be wrong. The bank will charge you around $34 for each transaction that occurred where you didn't have the money in the account to cover the purchase. Since the bank subtracted your purchases from highest dollar amount to lowest, you were overdrawn three times.
This is how it looks to the bank:

Balance Purchase Overdraft fee
$50 $45 None
$5 $15 $34
-$10 $12 $34
-$22 $5 $34
-$27    

Your account is overdrawn by $27 and you'll be charged $102 in fees. You're now $129 in the red. If you can't pay off these fees quickly, you'll face additional interest charges since overdraft protection is a loan.

The best advice is to always know exactly how much money you have in your account and avoid overdrawing your account. Also, opt out of overdraft protection. To learn more click here.

Shopping for The Account

Use the worksheet below to compare the costs of checking accounts.
If a credit union has the best rate, find out how you can participate

Checking Account
Feature		 Bank A (Name)

 Bank B (Name)

 Credit Union (Name)

 Savings & Loan (Name)
Monthly fee        
Cost to print 200 checks        
Monthly cost of on-line banking        
Minimum balance to avoid fees        
Fee for falling below minimum balance        
Bounced check fee per occurrence        
Teller fee        
ATM card fee        
Interest rate for high balances        
The bank, credit union, or savings & loan I will use is: