Do College Students Need a Checking and a Savings Account?

Should College Students Have a Checking and Savings Account?

Opening both a checking and savings account isn't necessary, but can be beneficial because the two accounts have different purposes. Whereas checking accounts are good for everyday transactions and paying bills, savings accounts are generally better suited for long-term savings goals.

Checking Accounts

Think of a checking account like your wallet, used for everyday transactions like paying bills, making purchases and getting cash from the ATM.

• Checking accounts typically allow for unlimited withdrawals and transfers.
• Your employer can deposit your paycheck directly into your checking account.
• You can pay bills online using your checking account.
• You can link your checking account to payment apps such as Venmo or PayPal.
• Most checking accounts don't earn interest.

Savings Accounts

Like the adult version of your childhood piggy bank, a savings account is a safe place to stash cash for future goals (like spring break) or emergencies (like car repairs).

• You can't use savings accounts to pay bills or make purchases. You have to transfer money into your checking account for that.
• Savings accounts usually earn interest.
• Most savings accounts limit how many withdrawals or transfers you can make per month without fees.

Having both a checking and savings account can be a smart move, but consider the pros and cons.

Pros of Having Both a Checking and Savings Account

• Having two bank accounts compartmentalizes your finances, making it easier to manage your money. Use your checking account for everyday spending without dipping into your savings for long-term goals.
• A separate savings account provides a psychological barrier against frivolous spending, helping you stay disciplined.
• Interest-bearing savings accounts can grow your savings even more. Compare the amount of interest accounts earn by looking at the annual percentage yield (APY).
• Some checking accounts offer overdraft protection. If there isn't enough money in your checking account for a transaction, money automatically transfers from your savings to cover it, avoiding overdraft fees.

Cons of Having Both a Checking and Savings Account

• You may have to maintain a minimum balance in your savings account to avoid fees.
• You'll have to keep track of each account's balance and associated fees to prevent losing money unnecessarily.
• Monitoring two accounts is more complicated than just one.

In general, having at least one bank account of either type offers many rewards over the alternative, including:

• Insurance: Money in deposit accounts is protected up to a certain limit even if the bank or credit union fails. Make sure the financial institution is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).
• Access to high-yield savings accounts: High-yield savings accounts pay higher APYs than standard savings accounts. As of March 2023, high-yield savings accounts averaged 5.05% APY, compared with 0.37% APY for standard savings accounts.
• Debit cards: Use your checking account's debit card to conveniently make purchases without the risks of carrying cash or the hassles of writing a check. Depending on when you report suspicious activity to your bank, you may also be protected from debit card fraud.
• Money management tools: Many banks offer features to help you keep manage your finances, such as setting up automatic payments for recurring bills, getting alerts of account activity or automatically transferring money from checking to savings each month.
• Added security: Keeping your money in a bank has distinct benefits over storing cash with your belongings. By keeping your money in a bank account, you won't be exposed to losing your savings due to theft, fire, flood or other dangers. You'll even be more protected from financial losses due to fraud.

How Do You Choose a Bank?

When selecting the best bank as a college student, there are many options to consider.

• Traditional banks typically offer the widest range of services, convenient mobile apps, and plenty of branches and ATMs for easy in-person banking and cash access.
• Credit unions are member-only institutions: You or your parents must join to get an account. They often offer lower fees and higher APYs than banks, but usually have limited digital banking features. Branches may be limited to one region—problematic if you're attending college far from home.
• Online-only banks have no physical locations and generally offer higher APYs, minimal or no fees and a robust online and mobile banking experience. Just make sure you can contact the bank for help with your account.

To evaluate financial institutions, compare these features:

• Fees: Banks may charge maintenance fees, transaction fees or service fees. Some also impose overdraft fees or nonsufficient funds fees if you don't have enough money to complete a transaction. Look for accounts with low or no fees to suit your student budget.
• Minimum balances: Banks may waive fees if you use direct deposit or keep your balance above a minimum.
• ATM availability: Find out which ATM networks you can use without paying fees and whether there are enough ATMs near your home and campus. (Online-only banks don't have their own ATMs, but usually partner with ATM networks or reimburse you for ATM fees.)
• Locations: You may need to visit a bank branch in person. Make sure there's at least one branch near your school and your home.
• Interest rate: An account's APY can have a big impact on your savings in the long run.
• Online/mobile banking features: Online banking and mobile banking apps should be user-friendly with all the tools you need to manage your money on the go.
• Protection: Make sure deposits are federally insured so your money is safe.

Some banks offer student checking accounts with features such as:

• No monthly maintenance fees
• No minimum balance requirements
• Ability to link your account to your student ID card to simplify transactions
• Low opening deposit requirements
• Cash bonuses for opening your account or depositing a certain amount

How Do You Open a Bank Account?

Opening a checking or savings account usually requires filling out an online or in-person application and providing:

• Valid government-issued ID, such as a driver's license, state identification card or passport
• Social Security number
• Birth date
• Contact information (address, phone number, email)
• An initial deposit (typically $25 to $100)
• Proof of student enrollment at a qualifying institution (if opening a student checking account)

Should you open a credit card account, too? Credit cards are a major responsibility; are they right for you?

If you're financially disciplined, a credit card can help you start building credit, making it easier to rent an apartment or get a car loan after graduation. Making small purchases with the card and paying the bill in full every month demonstrates responsibility and helps build a positive credit history. Credit cards can also help you handle financial emergencies, earn rewards and make online purchases more securely than using debit cards.

Worried about overspending on a credit card? A secured credit card or student credit card with low credit limits or an authorized user account on a parent's card can offer safer ways to learn credit management.

The Bottom Line

Just like the lessons you learn in class, the money management lessons you absorb in college can set you on the path to future success. Take the time to research different savings and checking account options before deciding which accounts fit your needs. While you're at it, check your credit report and credit score and set up free credit monitoring to keep tabs on your credit no matter how busy college gets.