The bank with the on-campus branch in the student union and the ATM across from the recreation center is the most convenient. It also offers a mobile banking option, and there are no monthly checking account maintenance fees — major selling points too.
But here’s something to pay attention to as you review your college students’ checking account choices: What are the institution’s overdraft policies?
If you don’t give this much thought, it could cost your student dearly over the school year.
Banks charge overdraft fees when having to cover a transaction a customer makes without having enough money in his or her account. Some will also charge the fee several times a day as successive transactions hit your account. That can quickly add up to $100 or more in penalties in just one day.
The NerdWallet personal finance website this month released an analysis of overdraft fees. Specifically, it looked at checking account products offered by financial institutions that have marketing affiliations, such as an on-campus branch or ATM, with a university.
NerdWallet highlighted three key findings:
▪ The average college student has an overdraft twice a year.
▪ People 18 to 25 incur more overdraft fees than any other age group.
▪ The median overdraft fee charged on university-affiliated checking accounts was $34.50, based on a survey of 20 of the largest schools in the country. That’s slightly lower than the national median of $35 charged by banks, according to Pew Research Center data.
For example, the Indiana University Credit Union charges students a $30 overdraft fee, MidFirst Bank charges $32.50 at Arizona State University and Bank of America imposes a $35 overdraft penalty at the University of Virginia.
Some banks have tiered penalties. Huntington Bank charges Ohio State students $23 for the first overdraft occurrence, jumping to $37.50 from then on, while customers of Bank of the West at the University of California at Berkeley pay $26 for a first offense, then $35 after that.
Regionally, the University of Missouri has a university-affiliated checking account with U.S. Bank, which has an overdraft fee of $36, according to NerdWallet. The University of Kansas and Kansas State University have affiliations with Commerce Bank, which also charges $36.
Many schools have partnership arrangements with financial institutions, with benefits for both sides. For colleges, it’s a source of revenue and a way to improve financial services, while banks often get an exclusive campus branch, preferred marketing and access to thousands of highly desirable potential young customers.
Regulators have taken notice of these partnerships, and in response the U.S. Department of Education has created regulations that among other things will prohibit banks with university ties from charging students high fees on checking accounts created for financial aid disbursements. The new rules take effect July 1.
I’m all for protecting students, especially if fees are high and disclosure is poor. But at the same time, students should also be held accountable for mishandling their money. It’s a hard lesson — and I learned it several times myself while in college. But learning how to handle money mistakes while in college is much safer, and usually cheaper, than after graduation.
Here are some suggestions from NerdWallet on what to ask before signing up for a checking account at any bank.
▪ What’s the overdraft fee?
▪ Is there a limit to the number of overdraft penalties that can be charged each day?
▪ Does the institution offer overdraft protection that, for example, will automatically transfer funds from another account to checking when your balance is too low?
Finally, NerdWallet pointed out that there may be better and still convenient banking options just outside the campus main gate. Indeed, it found better banking alternatives, including lower overdraft fees, within three miles of campus at 16 of the 20 schools it surveyed.
Steve Rosen: 816-234-4879