Every Student’s Banking Needs

Everyone is taught to save money, and to do so most people open up a savings account. After all, it makes sense right? Maybe you also have a CD or Certificate of Deposit. Do you have a Bank Money Market account?

Usually when you go to a bank and open up an account you get a savings account (or core account) and a checking account of some sort. As a student, your goal is to open up such accounts WITHOUT FEES. Granted you cannot completely escape fees (over drafting, past account history, or returned checks for example), but you should have your banking needs taken care of without paying fees. You do not have the money to throw away for nothing. Usually it’s the checking account that has fees, so make sure to go for FREE CHECKING accounts.

Do not get sucked into an interest checking account. You have a core savings account which will make some amount (and usually always more than an interest checking account) of interest. Usually interest checking accounts average 0.85% or so while your typical savings account will give you maybe 1.25% interest.

Why not get 4.0% or even 5.0% interest on your money that’s sitting in a bank? Here’s where a money market account comes in. A money market is a type of savings account banks and credit unions offer. They usually pay higher interest, but they have higher minimum balance requirements. Sometimes you are limited to the number of withdrawals per month. Your goal is to get one with high interest, low minimum balance, and preferably unlimited transactions.

I personally have the Citi Bank e-Savings account. It currently earns 4.25% APY (it used to be higher, but unfortunately it has gone down in recent months) and has no minimum balance requirements. You can link the account to your Citi Checking Account and transfer money online or using your Citi ATM/Debit card. You MUST open this account online – it cannot be done in a financial center – but once opened you can access your funds any way you like.

Why have a money market account? With online banking and ATM access it’s easy to move money around. You do not have to go into the branch at their in-“convenient hours” but rather just move money online or at an ATM. I do not write too many checks, and I pay for most things using my credit cards (get free stuff that way) so I do not have to worry about over drafting my checking account. This means my checking account needs very little balance in it. Consequently it means I have much more money to allow to sit in my money market account earning gobs more interest, and I am all for getting money for doing nothing.

What if you do not have the discipline not to touch the savings account? Here you have two options. One is to put the money into a CD. Pick a term where you know you will not need to touch the money. If you withdraw the principle before the end of the term, you will have to pay a penalty. CDs earn relatively good interest rates (usually better than money markets), but you have to plan well to avoid penalties for early withdrawal.

Another suggestion is to open up an online only money market account where you will not be tempted to spend money out of. I also have an E*TRADE Complete Savings Account which earns 5.05% APY. You do everything online and can transfer money into and out of your account through other bank accounts.

Other recommended choices include the HSBC Direct Online Savings Account earning 5.05% APY and the ING Direct Orange Savings Account earning 4.50% APY. UFB Direct in California has an account earning 5.31% APY with $1 minimum account balance; however I have had no experience with the bank.