When it comes to financial matters like selecting a bank, college students tend to be copycats and follow their parents' lead. That can be a mistake, given that the financial institutions with the best deals for well-endowed people may not offer the smartest choices for students who are just starting out. With that in mind, we've picked the best options for college students in five broad areas: checking accounts, savings accounts, credit cards, student loans and investment accounts. By best, we mean products that charge the lowest fees and require the smallest minimum balances. (For more insight, see All About Student Loans, our comprehensive tutorial on borrowing to pay for college.)
During orientation week, most students are bombarded with offers from banking giants like Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC). You might appreciate their eagerness to sign you up, but it's important to keep in mind that for-profit banks often charge large fees for precisely the sorts of things that students tend to do -
One knock against credit unions is that they tend to have few, if any, branches and aren't as convenient as commercial banks. Many are compensating with online banking. Some, like Arizona State Credit Union (which is open to students at the University of Arizona, Arizona State University and Northern Arizona University), offer mobile banking applications for Apple's iPhone.
You can also keep your account open at a credit union after you graduate. Most credit unions are part of shared networks of ATMs, which means that you will still be able to make deposits and withdrawals if you move to another city.
If your campus doesn't have a credit union, then you may be able to qualify for membership at one that is open to all college students or is offered by a parent's or other family member's employer. (This tool from the Credit Union National Association can help you find one near you.)
Even if your budget is tight, maintaining a savings account will help give you the discipline to save regularly and earn a bit of extra income by holding it in an interest-bearing account. We looked at savings accounts with high interest rates, no monthly fees and which only require $1 to open. Flagstar Direct and HSBC. Direct came out on top, with each offering interest rates of around 1.5%, according to Bankrate.com. Though its interest rate isn't as high as Flagstar Direct's, HSBC may be the better choice for most college students because it allows you to make deposits at any of the bank's ATMs, which are mainly centered in the Northeast and the West Coast.
The best option is to go with federal loans, rather than with private lenders like Sallie Mae or Citigroup. For that, you'll need to fill out the Free Application for Federal Student Aid, also known as the FAFSA.
"Federal loans are cheaper, have fixed rates as opposed to variable interest rates and they are more available," than private student loans, says Mark Kantrowitz, publisher of FinAid, a Web site that tracks the college financial aid industry.
Unlike private lenders, Uncle Sam allows you to base monthly payments on a maximum percentage of your income and is more lenient about deferrals and forbearance if you lose your job or become disabled.
For credit cards with low interest rates, credit unions are often the best bet, according to a study by the Pew Charitable Trust, a nonprofit research group. Banks charge customers interest rates that, on average, are 20% higher than credit unions' as well as heftier late-payment fees.
The Pentagon Federal Credit Union, for example, offers Visa cards with an interest rate as low as 13.9%. If you want to stick with a commercial bank, Discover Financial offers a card with a 14.99% interest rate for students with limited credit histories, according to LowCards.com.
Exchange traded funds are a great way to invest, but the brokerage commissions typically charged to buy and sell them can dissuade those with a little to put away each month from using them. One way around this dilemma is to take advantage of a new Charles Schwab line of ETFs that require no commission to buy or sell. The Schwab offerings have rock-bottom expenses and track broad market indexes. Schwab requires customers to deposit a $1,000 minimum or to make monthly contributions of at least $100. Another smart alternative is to buy a low-cost index mutual fund from Schwab, Vanguard Group or Fidelity Investments, three of the low-cost leaders.