How to choose your first bank account

As we say goodbye to summer, many parents across America will soon be saying another kind of farewell: To their teens, as high school grads begin their first year of college.

It’s an exciting time of new independence – and all the responsibilities that come with that.

With finances, especially, it is often the first time that teens are truly in charge of the numbers: Opening bank accounts, applying for credit cards, setting a budget, building up their credit.

All good things, but plenty of potential for things going wrong, as well. And we’re not starting from a good place: 50.7% of teens ages 15-18 fail the National Financial Literacy Test, a 30-question survey from the National Financial Educators Council.

Teens may not even be aware of things like minimum balances, overdrafts, ATM fees, and all of the little charges that institutions deploy to nickel-and-dime you. It’s a lot of information to process, coming at them all at once.

Laura Lynch faced this very situation just last year. The financial planner from Abiquiu, New Mexico had a stepson heading off to start his freshman year at college. 

And that meant a quick financial crash course on all the basics he would need to know – everything from opening bank accounts, to adding him as an authorized user on credit cards, to explaining how credit scores work.

“Many of the financial processes and logistics that are part of everyday adult life are confusing at first,” says Lynch. “It’s important to help college freshmen adapt to their new level of financial responsibility.”

A little Banking 101 to get them started:

Opening accounts

Even if the amounts are tiny to begin with, you want to put in place the basic banking infrastructure for young adults to begin their financial lives. 

That typically means a couple of accounts – first a checking account for everyday use, where interest rate isn’t the primary concern. In today’s digital age, consider looking at online or mobile-only banks, which eliminate prior generation concerns or needs to choose a bank located near where they went to school. Many online or mobile-only banking apps, such as Current**, don’t have mandatory monthly fees or minimum balance requirements, which can add up quickly.

Unfortunately, many others do. A sampler: Non-interest-bearing checking accounts average $5.47 in monthly service fees, according to financial information site Bankrate, while interest-bearing versions shoot up to $15.45 a month. But others charge nothing, which is why it is so important to pick the right accounts from the start.

Second, establish a savings account where they can generate real gains with longer-term money. Currently you can find around 4% on your cash in higher-yielding options, an attractive return for such low-risk accounts, with some of the highest rates often again found with online or mobile-only accounts. At Current, members can earn up to a 4.00% annual bonus on money in their Savings Pods.*

Understanding credit

College is the ideal time for students to start dipping their toes in the world of credit – carefully.

“You may consider opening a starter credit card,” says Easton Price, a financial planner in Huntington Beach, Calif. “Your limit will be relatively low at first, but will be very helpful in establishing and building a healthy credit score.”

Of course college campuses are easy pickings for credit-card companies. Students get bombarded with offers for new cards, and get caught in a negative cycle of high debt because they haven’t yet learned how to manage spending wisely.

But if they use cards responsibly, paying off debts on time every month, that’s exactly the kind of positive history that the credit-scoring companies will recognize and reward. A secured card is a similar way to build those scores with everyday banking transactions, and have guardrails in place to keep students from overspending. You’ll want to look for one with none or a low required security deposit and that reports your on-time payments monthly to all the major credit bureaus. With Current’s Build Card, members have just a single balance to view and manage on the platform and can get started with as little as $.01 in their account and there is no credit card check. Funds are held in reserve as you spend to pay your bill at the end of the month and these on-time payments are then reported to Equifax, Experian and TransUnion to help build your score.^

Watching out for fees

One momentum killer for young finances: Fees. For a teen getting their first paycheck, for instance, it can be disheartening to see their hard-won money eaten away by miscellaneous bank fees.

For instance, the average overdraft charge for bank accounts (where the institution temporarily covers the deficit) is currently $27.08, according to Bankrate. Even more worrisome, those figures are headed back up after years of decline. While you’ll want to look for an account that does not charge overdraft fees, also look to see if it offers overdraft protection, which is also common with many online and mobile-only banks, and can provide an extra cushion if needed. With Current members are never charged overdraft fees and members can receive up to $200 in fee-free overdraft once they set up and receive a qualifying direct deposit.***

Then there are charges for insufficient funds, which are tied to events like declined card charges or bounced checks. Those average $17.72 a pop, Bankrate found.

Another tripwire to avoid: Minimum balance fees. If a bank account requires a floor amount, and your savings are not yet at that level – and many teens are not – then you will get socked month after month. The smarter choice is to select accounts that don’t mandate minimum balances at all.

Finally, ATM fees are a real killer, for those who go out-of-network on a regular basis. The average is now up to $4.77 per transaction, the highest amount since Bankrate began tracking the numbers back in 1998. 

The wise course of action: Avoid that possibility in the first place, by opening accounts with institutions that have wide networks for fee-free withdrawals.

With that kind of basic financial knowhow, new college students can avoid the notorious debt traps of freshman year, and focus on what they’re really there for: An education.

*Boost Bonuses are credited to your Savings Pods within 48 hours of enabling the Boost feature and on a daily basis thereafter, provided that the Savings Pod has accrued a Boost Bonus of at least $0.01. No minimum balance required. The Boost rate on Savings Pods is variable and may change at any time. The disclosed rate is effective as of August 1, 2023. Must have $0.01 in Savings Pods to earn a Boost rate of either 0.25% or 4.00% annually on the portion of balances up to $2000 per Savings Pod, up to $6000 total. The remaining balance earns 0.00%. To earn a Boost rate of 4.00%, you must receive at least one Eligible Payroll Deposit equalling a minimum of $200 over a 35-day period. For more information, please refer to Current Boost Terms and Conditions.

**Current is a financial technology company, not an FDIC-insured bank. FDIC insurance up to $250,000 only covers the failure of an FDIC-insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply. Banking services provided by Choice Financial Group, Member FDIC, and/or Cross River Bank, Member FDIC. The Current Visa® Debit Card, which may be issued by Choice Financial Group and/or Cross River Bank, and the Current Visa® secured charge card, which is issued by Cross River Bank, are all issued pursuant to licenses from Visa U.S.A. Inc. and may be used everywhere Visa debit or credit cards are accepted. A Current deposit account is required to apply for the Current Visa® secured charge card. Independent approval required.

***Up to $200 overdraft amount only available for a limited time to new users who sign up for a Current account through the applicable landing page and/or with the applicable code, as determined by Current in its sole discretion. Actual overdraft amount may vary and is subject to change at any time, at Current’s sole discretion. In order to qualify and enroll in the Fee-Free Overdraft feature, you must receive a minimum of $200 or more in Eligible Direct Deposits into your Current Account over the preceding 35-day period and fulfill other requirements subject to Current’s discretion. Negative balances must be repaid within 60 days of the first Eligible Transaction that caused the negative balance. For more information, please refer to Fee-free Overdraft Terms and Conditions.

^Individual results may vary. Using your credit card responsibly may allow you to improve your credit score. Credit building depends on various factors, including your payment history, credit utilization, length of credit history, and other financial activities.