While banks have peeved plenty of customers this year by hiking fees on checking accounts and killing debit-card rewards programs, they've also been courting one group with better perks and benefits: college students.
As students head back to campus this year, banks are pitching them products with better terms, including longer zero-interest promotional periods on credit cards, no-fee checking accounts and more flexible debit-card rules. And in most cases, these perks are attached to credit cards and checking accounts that the banks have designed exclusively for college students. While data doesn't exist on the growth of products aimed specifically at students, banking experts say the number of deals is clearly growing -- and will continue to do so. "College students are fortunate that for the time being they're still on the list of things banks do value," says Richard Barrington, an analyst at MoneyRates.com, which tracks bank rates.
Even at a time when banks are increasingly wary of extending credit, college students remain very important to their bottom line. For the banks, it's a way to grab young customers on their way up. This is especially important when it comes to credit cards, where conventional wisdom encourages people to hang on to their oldest cards to build better credit. And students aren't as risky as they might seem. According to Nessa Feddis, senior counsel at the American Bankers Association, "Students also tend to perform better than the overall cardholding population," because they keep up with payments and carry lower balances.
Also making students less risky, say experts: New credit-card rules. For example, students under the age of 21 are now required to provide proof of income or assets or have a co-signer before they can receive a credit card, thus lowering the chance of a default. In other cases, banks are looking for new ways to profit off college students despite rules aimed at keeping fees and charges low. Starting this October, banks will receive less from retailers for using their debit cards, but banks are looking to limit the damage by rolling out more prepaid cards, which aren't included in the new law, says Odysseas Papadimitriou, chief executive at credit-card comparison site CardHub.com.
For now though, college students can benefit by shopping around for financial products that are geared to them. Here's where to start looking:
New credit-card rules have led to longer 0% APR promotional periods and better rewards programs, says Papadimitriou. For example, the Discover Student More card and Discover's Open Road Card for Students offer 0% APR for the first nine months -- the longest zero-interest period available to college students, according to CardHub.com. That could be enough time for students to pay off early semester college expenses -- like books, supplies and school sweatshirts -- without incurring interest.
Card issuers are also beefing up their reward programs. Capital One's Journey Student Rewards card offers 1% cash back on purchases and a 25% bonus on that amount each month the bill is paid on time. Citi's mtvU Platinum Select Visa card offers five points for every dollar spent at certain stores, including bookstores and restaurants, and one point for all other purchases, and anywhere from 250 to 2,000 points for students with grade point averages of 2.5 and above. Students can start redeeming once they hit 100 points. For students who pay $5 to $20 to join the Pentagon Federal Credit Union, its Visa Platinum Cashback Rewards credit card offers 5% cash back on gas -- a perk for commuters -- and 1% on everything else.
And in some cases, interest rates aren't sky high. Depending on the student (or co-signer's) credit history, they could end up with an interest rate that's in line with the industry average of about 14%. The Citi and Discover cards can, however, spike to more than 19%. Capital One's rate is roughly 20% for most applicants.
Maintenance fees. Overdraft fees. ATM fees. Even as banks continue to hike charges on checking accounts, about two dozen have free checking accounts that are tailored to college students. About half of those are easy to maintain: That includes large banks like Fifth Third Bank, TD Bank and U.S. Bank as well as smaller regional banks like Sovereign Bank, Bank of the Commonwealth and Valley National Bank, according to a report from MoneyRates.com released this month. These checking accounts often require no more than $50 to open, don't charge fees on accounts with low balances and don't require direct deposits. That makes banking cheaper for most students who don't have a steady income stream to maintain an active bank account.
Meanwhile, student loan lender Sallie Mae launched a new no-fee checking account in March, which is currently available to students at a small number of colleges -- Sallie Mae wouldn't disclose the names or number of colleges -- but expects more schools to participate in the coming year. With these accounts, students have free access 35,000 ATMs throughout the country. Colleges can also deposit financial aid or tuition refunds into their accounts as well, says a spokeswoman for the company.
The debit cards banks offer to college students are typically identical to the cards they pitch to everyone. But some banks offer extra benefits to students. For example, many banks charge customers fees every time they withdraw money from an ATM that's not part of their network. But student checking account customers can use ATMs outside of their bank's network up to four or five times a month for free at U.S. Bank and Fifth Third Bank, respectively.
Still, for a robust debit card rewards program, college students might want to consider an option available to all. With online bank PerkStreet, customers can earn up to 2% cash back on their debit purchases or 1% if their checking account balance drops below $5,000. The bank, which has 37,000 ATMs throughout the country, also offers 5% rewards on specific categories of purchases, like housing or dining, that change each month.
Meanwhile, some of the banks that offer the cheapest college-student checking accounts also offer debit card rewards programs, including TD Bank, M&T Bank, and Sovereign Bank. But the rewards don't come easy: At TD Bank, for example, debit card holders have to swipe for at least $2,000 worth of purchases to start redeeming points. At Sovereign Bank, debit card holders get up to 20% cash back on purchases at more than 1,200 of retailers, including Restaurant.com, TurboTax and Brookstone, which is then credited to their checking account.
There are no prepaid cards aimed specifically at college students, though a bulk of them are targeted to parents of teenagers. These cards are increasing in number: American Express, for example, introduced a prepaid card in June, and more major lenders are expected to follow suit, says Papadimitriou. What's in it for them is more fees. Swipe fees on prepaid cards, which range from 1% to 2% of the total purchase, will remain unchanged; they're excluded from the new debit card swipe fee rules that go into effect in October.
For now, most prepaid cards aren't a great deal. To begin with, most charge $10 per month, which eats into the card's balance. And considering that students can sign up for free checking accounts, paying for a prepaid card could be a waste of money for many families. In addition, students don't even get the benefit of building a credit history, since most card issuers don't report the activity to the credit reporting agencies, says Bill Hardekopf, chief executive at LowCards.com, which tracks credit and prepaid card offers. Students who don't build a credit history early on are likely to have a lower credit score 15% of a consumer's FICO credit score is determined by the length of their credit history -- which after graduation could mean a harder time getting approved for credit or ending up with higher rates. The issuers say this is a safer way to give students money since it prevents them from getting into credit card debt and it helps them better understand how to manage finances.
For students who do decide to sign up for a prepaid card, American Express' card is among the most affordable at $0 in monthly fees but $2 for each ATM withdrawal after the first one each month. BillMyParents SpendSmart MasterCard Prepaid card charges $3.95 per month with an additional $1.50 per ATM withdrawal. And the UPside Visa prepaid card charges up to $3 per month and up to $1.95 for each ATM withdrawal. In the rare cases where a student receives a monthly paycheck of at least $2,000 and visit the ATM at least once a week, the Green Dot Gold Prepaid Visa card comes out to $0 a month, according to a CardHub.com study.