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How to help your teen choose the right bank

As teens leave high school, they need to learn how to become their own money manager and choose the right bank..
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Young people face many transitions as they leave high school. One of the most important is the need to become their own money manager. You may think that choosing the right bank with your teen is as simple as opening a checking account at the local branch. In some cases that’s true, but it may not always be the best fit for your kid. Some eighteen year-olds don’t know the basics about banking, and that's why Susan Beacham, CEO of Money Savvy Generation and co-author of "Official Money Guide for College Students," says it is important for parents to act as a financial advisor. There are things like fees, bank accessibility, and perks that ought to be considered when selecting accounts for bank, checking, savings, and credit cards. Ultimately, Beacham says the best bank is the one that suits your teen, meets their objectives, and has low or no service fees.

Breaking down the basics of banking is a good place to start with kids. Here are a few pointers you can pass along to them as you assume your advisor role.

There are two options when opening an account, checking or savings, and they should be managed differently.

Think of your checking account as a virtual wallet. It does not earn interest and the money in the account is treated as cash which is linked to your debit card and paper checks. A savings account is a reserve for money that is intentionally being saved. It earns a small amount of interest over time and there are rules on how many times you can transfer or withdraw money monthly. Most banks offer student accounts for young people continuing their education that come with benefits like overdraft protection and waived monthly service fees.

To see how the bank your teen is considering measures up, be sure to read the fine print. These are the key words to keep an eye out for:

  • Monthly and service fees – Most monthly fees consist of maintenance fees. Some banks say that they have free checking or low monthly fees, but that may be based upon a minimum balance in the account. If they say “low fee” make sure that you know what the fee is, and how it is applied. At some banks, anyone twenty three years-old and under who is enrolled in college or a career training program can have monthly fees waived when they are enrolled in a student banking program. Those fees can also be waived if $250 is deposited directly into their savings account monthly. It is also important to know that if your child had an account as a minor their account fees might change once they turn eighteen years-old. Therefore you should inquire about student programs for your child to avoid fees.
  • ATM fees – Some banks charge customers a fee to withdraw money at ATM’s that do not belong to their institution. These transactions are referred to as “out-of-network” transactions and can cost up to four dollars. Keep in mind that using an out-of-network ATMs also comes with its own fee. So you could end up getting charged twice: once by your bank and once by the ATM.
  • Overdraft fees – An overdraft is when you spend more money than what you have in your account. It can come with a large fee from your bank. In some cases, it can cost $35 in addition to the cost of the item you purchased if you opt-in to an overdraft protection plan. If you are not enrolled, your transaction will be declined and you will not be charged an overdraft fee.
  • Minimum balance fee – Some banks require a minimum balance in accounts. If at any point the required amount is not in the account, the account holder will be charged a fee. For some savings accounts, the fee can be as high as $500.
  • Paper-Statement fee – Some banks charge customers who do not go paperless up to two dollars every month to send them a physical account statement. Go green and avoid the fee by digitizing your statements.

Remember, if there is something that you do not understand within the agreement, be sure to ask questions. According to the Federal Deposit Insurance Corporation (FDIC), federal regulations require banks to disclose certain information to customers. You can also review bank account agreements online before you visit a local branch so that you can prepare questions to ask.

Online and mobile banking

With online banking, managing your money can be done from anywhere. You can view your balance, pay bills, and transfer funds. Most banks offer online banking for free. Mobile banking is also helpful. According to the Federal Reserve’s report on Consumers and Mobile Financial Services, 32 percent of young people between the ages of eighteen and twenty-nine rely on mobile banking services to manage their money because it is convenient. With mobile banking you can receive low account balance alerts, deposit checks, pay bills, and contact customer service from within the app.

Location matters

When choosing the bank that is the best fit for your teen, remember to factor in location. Once students have plastic in their pocket, they often forget about carrying cash. But having access to an ATM or bank branch is important too. If they are in a new city or town, try to make sure they know where their local branch or ATMs are. If your student will be attending school in a new area, Beacham says that a good place to start your search for banks is to call the bursar's office or by visiting its website. She encourages parents to ask for lists of recommended banks and to inquire about university banking.

Re-evaluate your bank

Once your teen has made their decision, it’s not set in stone. Beacham says to re-evaluate the bank after three months to gauge whether or not it’s still a good fit. One way to do that is by reviewing the fees. If your teen realizes that they are paying more than what they planned to in fees, they may want to consider shopping around for another bank.

Parent Toolkit resources were developed by NBC News Learn with the help of subject-matter experts, including Brian Page, Educator and Financial Literacy Leader, Reading Community School District.