Banking and credit card fees can be costly, especially for college students on a tight budget. But many of these fees can be avoided by knowing your bank’s policies, choosing the right bank account and using credit cards responsibly. Here’s how to avoid some common financial fees:
It pays to do your homework
There are two bank account fees that students and other consumers can easily avoid — maintenance fees and overdraft fees.
Maintenance fees are monthly fees — usually under $10 — for checking and savings accounts. Overdraft fees — an opt-in feature if you want the coverage — are charged when a purchase puts your account under $0. You can rack up multiple overdraft fees per day; the limit depends on your bank’s overdraft policy.
What to do: Many banks allow you to avoid monthly maintenance fees by maintaining a minimum balance in your account or by having a minimum monthly direct deposit. Each bank has its own rules for avoiding these fees, so check your bank’s policy for details. Some banks offer student checking accounts that waive the fees while you’re in school.
The median overdraft fee is $35, according to a new NerdWallet study, which analyzed the overdraft fees of 20 checking accounts affiliated with some of the largest universities in the U.S.
What to do: The fee can be avoided in a few ways. The first way is obvious: Don’t spend more than what you have in your account. Get in the habit of checking your account balance regularly, and set up text alerts for when your account falls below a certain balance.
You also can opt out of overdraft fees. By federal law, overdraft protection is opt-in, not automatic. So if you accidentally opted in, you can opt out of overdraft coverage; however, debit card transactions that would put your account in the negative would likely be rejected.
If you don’t have enough money in your account, some of your transactions — specifically bounced checks and online bill payments — may result in nonsufficient-funds, or returned-item, fees. They cost about the same as overdraft fees.
What to do: If your bank doesn’t measure up when it comes to fees, consider switching. Many students may get an account at their parents’ bank or sign up for the bank their school is affiliated with, but these aren’t necessarily the most cost-effective choices. Online banks and credit unions tend to have lower fees than larger banks, so they’re worth a look.
It helps to choose a good card and use it responsibly
There are three major credit card fees students can — and should — avoid: annual fees, late fees and cash-advance fees.
Annual fees are charged just for carrying the card, late fees incur when you don’t make at least your minimum payment by your due date, and cash advance fees are charged for short-term loans against your credit card.
According to the NerdWallet study, the average late-payment fee on student credit cards is $35. Avoiding these fees seems simple: Just don’t pay late. However, it can be difficult to keep track of due dates for all of your accounts, especially with a heavy course load and an active social life. If you tend to forget the due dates, set up automatic payments and make sure to have enough balance in your bank account.
What to do: An annual fee can be avoided by choosing a credit card without one. Most student credit cards don’t have annual fees, so you should have plenty of options. Just to be clear, however: Annual fees on credit cards aren’t inherently bad, but they make sense only if your spending is high enough so that the rewards you earn outweigh the fees you pay. Student expenses are usually low, so it would be hard to justify having a card with an annual fee.
Cash advances are expensive, both because of fees and interest charges. Cash advance fees generally are 2% to 5% of the amount of the loan, but some card issuers charge a flat dollar amount. Interest rates on cash advances are usually higher than on purchases. And the interest on advances starts accruing immediately; you don’t get a 25- to 30-day grace period like the one available for regular purchases.
Another downside of cash advances is the amount you can take out. Typically you’re limited to a few hundred dollars, so if you need cash on an ongoing basis, you quickly may have to take another advance — and pay another fee.
What to do: It may be cheaper to get a personal loan from a bank or to borrow money from a loved one.
Financial fees can be expensive on a student budget, but by using our tips, you could instead spend that money on the myriad fun things in college or save in an emergency fund.
Erin El Issa is a staff writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @Erin_El_Issa.
This article was written by NerdWallet and was originally published by U.S. News & World Report.