College students in a classroom

Having a college student open their own bank account may sound like a good idea. But parents should be aware that these accounts often come with high fees. That's why it's important to know what to look for—and what to avoid—when helping your child open a bank account.

Allowing your child to have his or her own account offers a lot of convenience. Students can manage their day-to-day cash flow, receive financial aid deposits, and get cash for pizza and other incidentals.

Granted, your student may not need an individual checking account right away. You may be able to add him or her to your own checking account, or you can simply direct money via a payment app.

If you decide to open an account, you'll want to lend a hand with this process, especially because your son or daughter may be steered toward a high-fee account.

Many colleges enter marketing deals with banks to push account options that may carry risky or costly features, according to a recent report (PDF) by the Consumer Financial Protection Bureau (CFPB). Those arrangements have led students to pay hundreds of dollars in unnecessary costs per year, including overdraft charges and out-of-network ATM fees.

The Costs of College Banking

It's a problem that regulators were supposed to have fixed. In 2015 the U.S. Department of Education instituted new rules requiring banks to offer low-cost student banking options and provide consumer safeguards.

Yet some colleges have continued to market products with high account fees and make it difficult to find out the true costs, the CFPB study found. 

The CFPB first started tracking problems with financial products offered on college campuses in 2016, and a report on its latest findings was completed more than a year ago. But the study was only made public recently, after several consumer groups, including Consumer Reports, filed a Freedom of Information Act request for its release.

Seth Frotman, former CFPB student loan ombudsman who resigned in August, criticized the Department of Education for not releasing the report sooner, saying it shows a lack of interest in enforcing the campus banking regulations.

In its report, the CFPB found that 1.3 million college students paid more than $27 million in fees during the 2016-2017 academic year, while colleges were paid $16 million by banks for promoting the agreements.

More On Fees

The report said Wells Fargo, which is still dealing with fallout from scandals involving fake accounts in customer names, was the second-largest provider of campus bank accounts but had the steepest fees, averaging nearly $50 a year, three times higher than the average for other banks.

Wells Fargo declined to comment on the CFPB report but said it waives monthly service fees for students who link their account to a Wells Fargo Everyday Checking account.

Practices like those described in the CFPB report are why Consumer Reports has launched a program called "What the Fee?!" The goal is to highlight surprise fees—and help consumers fight back. (You can find out more about our efforts at WhatTheFee.com.)

Given these findings, it's clearly important to shop around when opening a college bank account.

"Students shouldn't assume that the campus-sponsored account is necessarily the best account to meet their needs," says Suzanne Martindale, senior policy counsel at Consumer Reports, who led an earlier Consumer Reports investigation into college banking products. Those findings helped shape the 2015 Department of Education rules to protect students from excessive fees.

The good news is that most students have affordable banking options. Many schools with bank marketing agreements offer low or no-cost banking products, according to the CFPB. The report also found that although half of students with these sponsored accounts paid higher-than-average costs, the other half didn’t pay any fees.

Here are five rules for finding the best college bank account for you.

Focus on Free Checking

You may be pitched a particular bank in the college orientation packet, but don't jump at it.

“The college-affiliated bank may not be the best low-fee option,” says Kimberly Palmer, a banking expert at NerdWallet.

At a minimum, the bank you pick should waive maintenance fees on student checking accounts without requiring hefty balances, and offer a free debit card, free check writing, and free ATM usage within its network. But get a complete list of fees, including overdraft protection and out-of-network ATM charges (more on those below).

Another option is to seek out a nearby credit union.

“Many colleges and universities are affiliated with credit unions, which tend to have lower fees as well as locations and ATMs on or close to campus,” says Greg McBride, senior vice president and chief financial analyst at Bankrate.com. Check our advice on finding the best bank or credit union.

Depending on your confidence in your kid’s money management skills, you may want to open a joint account with your son or daughter. That may make it easier to avoid fees because you'll have more assets to deposit.

You'll also have an easier time keeping tabs on your kid’s balances and spending, says Simon Zhen, a research analyst at MyBankTracker.com. 

Beware of Overdraft Protection

When signing up at a bank, your student will probably be offered overdraft protection. It’s best to opt out because he or she would be at risk of incurring hefty fees.

A recent study by NerdWallet found that the median bank overdraft charge was $35, and the average college student overdrew his or her account 2.2 times per year, compared with 2.07 times for the average American.

Even if your student opts out of overdraft coverage, there's still a risk of being charged a fee for "nonsufficient funds," if a check or bill payment exceeds the account balance.

To avoid this problem, set up a savings account and link it to your checking account, McBride says. That way, the bank will automatically pull money from the savings account if the checking balance falls short. There may be a nominal fee for this service, perhaps $10, but it would be much less than an overdraft charge.

Check Out ATM Access

Be sure to find out whether the bank near the school provides fee-free ATMs outside of that region. After all, when your kid is home over break or working as an intern in another city for a semester, he or she will want access to cash.

Large banks offer a wide number of branches across the country, and credit unions typically provide free access to a national network of ATMs. But regional and community banks may not have ATMs in your area, which might result in out-of-network fees—on average $4.69 per withdrawal, according to Bankrate.com, which includes charges from both your own bank and the ATM owner.

Consider Online Banks

If the options for walk-in banks are limited, look at online banks. Most offer checking accounts with no maintenance fees, though some may require a minimum balance or monthly direct deposits.

With many online banks, you're usually reimbursed ATM fees, and you can make deposits by simply scanning or snapping a picture of a check.

Check out online saving accounts too, because they tend to pay a higher interest rate than traditional banks. If your student has a job, you may want to direct that income into one. 

Check Student Eligibility Rules

Most banks set eligibility limits for student checking accounts, Zhen says. Some may permit student checking for only four years or cut off eligibility by age; others may end student checking after the graduation date.

At that point, your student may receive a 30-day notice that the account will convert to a different fee schedule, which will probably mean minimum balance fees or other charges. So make sure your new grad has opted for a better alternative before that happens.