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How Undergrads Can Skip Banking, Credit Card Fees

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College students have many options when it comes to banking products and student credit cards, but a new NerdWallet study shows those products can be expensive if they don’t choose wisely.

We analyzed banking and credit card fees, interest rates and debt loads to find out how much it costs the average student to have a checking account and a credit card. The answer? More than $1,000 over four years in college.

But you can avoid or minimize those costs.

Avoid checking account fees

If your checking account dips to zero and you continue to make purchases, you’re overdrawing your account. Many banks will let you keep making purchases without sufficient funds but may charge you an overdraft fee each time it happens.

On average, college students overdraw their accounts 2.2 times per year, resulting in millions of dollars in overdraft fees for banks.  The median overdraft fee of university-affiliated checking accounts analyzed by NerdWallet is almost $35. That would cost an average student $77 per year in overdraft fees.

This cost is significantly higher for some students. According to the Consumer Financial Protection Bureau, 10.7% of 18- to 25-year-olds overdraw their accounts more than 10 times per year.

Overdraft fee limits — or the number of times per day a bank will charge you an overdraft fee — vary by bank. So you can rack up multiple charges per day; if you keep swiping your debit card, you’ll keep getting charged.

You typically can find cheaper overdraft fees — or none at all — with online banks and credit unions.

Overdraft coverage is an opt-in feature, so if you’ve opted in, you can opt back out. No matter your bank, make sure you don’t accidentally opt in for overdraft coverage. Overdraft coverage is when banks pay for certain transactions even though you don’t have enough money to cover them; the banks then charge an overdraft fee. By opting out, your debit card transactions will simply be declined if you have insufficient funds.

But be aware, if you use your card without having enough money in your account, you may get hit with a similarly priced nonsufficient funds, or NSF, fee.  This is a separate fee charged by some banks. NSF fees are more likely charged for bounced checks and online bill payments.

You should always try to avoid spending more than your account balance. It may help to set up text message alerts for low balances. Check your balance regularly, particularly if you don’t have much of a cash buffer.

Avoid late fees, interest on credit cards

Student credit cards are solid credit products. (If you’re under 21, you might be able to qualify only if you have a co-signer.) Many student cards offer rewards and have no annual fee. But if you’re paying late fees or interest charges, the cards aren’t worth it.

According to a study by Experian, one-third of soon-to-be graduates with a credit card have paid the bill late at least once. The student cards we analyzed have an average late-payment fee of $35. In addition, some cards impose penalty APRs, or annual percentage rates, of up to 30% for those who make late payments.

The easiest way to avoid late fees is to set up automatic payments from your checking account. Ideally, you’d want to set them up to pay the entire monthly balance on your card so you don’t have to pay interest. But do it even if you can only make the minimum payment. Then you won’t have to worry about due dates.

If you can only make the minimum payment each month or anything less than the full outstanding balance, it’s time to re-evaluate how you use your card. Credit cards are valuable tools for building credit and even earning rewards, but if you regularly roll over a balance from one month to the next, thereby paying interest, you should probably stop using them for now.

Check out the full 2017 study for student tips on choosing bank accounts and credit cards.

Erin El Issa is a staff writer at NerdWallet, a personal finance website. Email: erin@nerdwallet.com. Twitter: @Erin_El_Issa.