It’s back to school time, which means a plethora of articles about finding the best checking account for your rising college freshmen (it seems we are all procrastinators in matters like this).  What’s the biggest mistake people I think that people make in this process?  Going to a bank.  Come again?  How can going to a bank be a mistake.  Unfortunately, an incredibly high percentage of folks make their decision based on non-economic factors (branding, location, where their parents bank, etc.).  And when they step into a bank to set up an account, they want to leave with several things:  an ATM card, a checkbook and their new account number.

What’s wrong with that you say?  They did NO comparison shopping and therefore they are settling for whatever the bank offers.  So, how should you make this decision.  Let’s start with a few more questions…

• Why do consumers behave this way?  Banks don’t make it easy to comparison shop with some banks providing different levels of disclosure as this transparency study shows.  A 2013 study found the average checking account had thirty fees which can seem onerous to review.
• What are the most common fees you should worry about?
  • Account maintenance (or monthly fee):  may/may not be tied to low balance in your account
  • Out-of-Network ATM fee
  • ATM/Debit Card replacement fee
  • Check printing fee
  • Overdraft fees
  • Foreign transaction fees (planning to spend a semester abroad?)
• Why does this matter?  A 2013 study by WalletHub found that checking account costs can vary from $200-$550 per year depending on customer profile.

So, step 1 in the checking account selection process is to do your comparison shopping before you ever step foot in a bank branch (or before you set-up your account at an internet bank).  Interesting factoid that among consumers under 21 years old, only 17.6% are comfortable with these digital-only checking accounts (Bank Choice Monitor).

So, what should you be comparing?

Summarizing a few articles here, here and here,

• Access.  Be sure your bank either has ATMs near your campus or covers the cost of using out-of-network bank ATMs if they are not located near your campus.  Those $3 ATM fees can add up so be sure ATM transactions won’t cost you.
• Fees, fees, fees.  The list above is a good starting point to compare.
• Overdraft.  The biggest decision you will need to make is whether or not to choose overdraft protection, a $31 billion annual fee generator for banks). Here’s a decent article from Money about factors to consider before making this decision of whether to opt in or not.

If you have made it this far, check out this lesson from Next Gen Personal Finance (new name for CFCI) on “Beware of Checking Fees,” which will test your ability to read the fine print.  Enjoy!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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