The beginning of the school year offers banks and credit unions a great chance to get college students to sign up for checking accounts and debit cards, which is why many financial institutions now partner with colleges and universities in hopes of landing lifelong customers.
But experts caution that the school-branded accounts may not offer the best terms.
"Some of these co-branded accounts could provide good value to the students, but that's not always the case," said Rich Williams with the Consumer Financial Protection Bureau (CFPB). "Financial institutions often pay schools millions of dollars in exchange for this exclusive marketing arrangement."
Forty percent of all college students now attend a school that has some kind of bank-related marketing agreement, according to a report last year from the U.S. Government Accountability Office.
The nonprofit Center for Responsible Lending (CRL) studied these co-branded accounts and concluded that they offer "few benefits" to the students who use them. (The report Overdraft U, was released in March.)
"Remember, your college has not necessarily reviewed all of the accounts available and decided this is the best account for their students," noted Maura Dundon, CRL's senior counsel. "In fact, they're getting money to help the bank market this to you."
That marketing typically includes co-branded mailings and ads on the school website. The school logo may even appear on the debit card. At some schools, that checking account is linked to the student ID card - offering the utmost in convenience.
"This co-branded marketing could leave the student believing this is a superior deal to what they could find on their own and that's not necessarily the case," the CFPB's Williams told NBC News. "That's why it's so important for students to shop around and look at the terms and conditions before they choose a college account."
In a recent blog, the CFPB reminded students that "just because an offer looks like official mail from your college, you don't have to accept it." The bureau also has a checklist for opening a bank or credit union account on its website.
The banking industry says these marketing agreements benefit both the students and the educational institutions they attend. The American Bankers Association (ABA) states that students often do better with campus bank accounts because bankers often offer them at a loss in order to build a financial relationship.
"The only difference between a campus account and a non-campus account is that the monthly fees are lower and they may pay less at an ATM," said Nessa Feddis, the ABA's senior counsel.
The U.S. Department of Education sees it differently. It found "excessive fees" and "troubling practices" on the nation's college campuses. In March, the department released proposed rules to regulate on-campus debit cards. Final rules should be announced this fall.
To get the best deal you need to shop around
Shopping for a checking account is like any other purchase. You need to see what's available and which financial institution offers the best deal for your needs.
"Look everywhere, credit unions, community banks and online banks," advised Greg McBride, chief financial analyst with Bankrate.com. "And don't feel locked into an account with the name 'student' on it."
When you compare checking accounts, look at the terms and conditions. Pay close attention to the fees:
- Is there a monthly fee if you don't maintain a minimum balance?
- What are the ATM fees?
- Is there a fee to use your debit card to make a purchase?
- How much are the overdraft fees?
"Don't be lured into accounts that are marketed as free or easy," cautioned the CFPB's Rich Williams. "It's very rare to have an account with no fees."
Such an account could have high overdraft or ATM fees that can be much more expensive than paying a couple of bucks each month, for example.
Overdraft fees can drain an account
Overdraft fees are a big problem for students. Many don't realize they can be hit with a steep fee for making purchases that overdraw their checking account.
"Students do more and smaller debit card transactions, so that means the debit card overdraft fees are more likely to rack up more quickly for them," said the Center for Responsible Lending's Maura Dundon. "So there could be a $35 overdraft fee on that $2 cup of coffee. And they may have five or six of those small purchases a day."
Students need to understand how overdraft protection on a debit card works. They have to say "no" to this protection to avoid the fees - which is counterintuitive.
"Opt-in" or agree to overdraft protection: You'll be charged an overdraft fee if a point-of-sale purchase or ATM cash withdrawal overdraws the account.
Turn down this protection: Debit card purchases or cash withdrawals that would overdraw the account will be declined, but you won't be charged a fee.
The decision to opt-in or opt-out of overdraft protection can be changed at any time. The website NerdWallet has a list of checking accounts that have no or very low overdraft fees.
It's also a good idea to sign up for email or text alerts that flag when your balance gets below a certain level. And to avoid extra fees, cash withdrawals should only be done at ATMs that are part of the originating bank or credit union's network.