So your college student needs a bank? Consider a credit union

ATMRight about now there are a lot of college freshmen either starting classes or packing up the car with Mom and Dad to head off for school. And while it probably isn't the first thing on anyone's minds, eventually the question may arise: Where am I going to do my banking?

It's a question that probably comes about less these days because there are more national banks. Not to sound like I belong in an old folks home -- I'm pushing 40 -- but back in my day, I had a bank account at my parents' bank in our hometown, and it was a small, independent bank in Middletown, Ohio. There was no branch in Bloomington, Ind., so I wound up banking with the university's credit union.
I'm thinking about this because Forbes.com ran an interesting story yesterday explaining why college students in the market for a bank should consider their university's nonprofit credit union. Not every university will have one, but many do, and they are often a better deal for a college student.

As you probably know, credit unions often have lower fees and are usually a little kinder and friendlier about how they levy those charges. Whereas some banks seem to be hoping a customer will make a mistake, credit unions more or less go out of their way to make sure their patrons don't get a fee (i.e., their debit cards often won't take a charge if you don't have money in the account; if you deposit a check and they have debit charges to run through, they'll put the money in first and then take the debit charges, rather than the other way around).

Esther Yi's Forbes' article also had some good advice from an expert who suggested that college students might want to open an account with the credit union and a commercial bank. The parents can transfer money quicker to the commercial bank (it can take a couple days for the money to be available when transferring to a credit union), and then the student could put the money in their credit union.

On the other hand, there's a good argument for not opening a credit union account and a commercial bank account, too. You're doubling your odds that something will go wrong, and your college kid winds up with twice as many bank fees, and there's something to be said for your 18-year-old learning to plan his or her finances ahead, rather than calling you to say they need money right now.

And yet another reason worth considering a credit union -- one that the Forbes article didn't discuss -- is that many of them are starting to offer student loans. More than 80 credit unions belong to Credit Union Student Choice, a financial lending consortium that offers loans to college students. There are no origination fees and the average interest rate is 5.8%. So that's something to ponder as well, along with the 900 other things that are probably on you and your college kid's minds right now.

But the takeaway in Yi's article is that the reason college students may find college credit unions appealing is that many of them are designed with college students in mind. For instance, the Michigan State University Federal Credit Union has a seven-day grace period before charging for a late credit card payment. Joyce Banish, vice president of university and community public relations, was quoted saying that they get that students are "new at managing their finances. We know that students are busy sometimes... and we're willing to give them a break."

I can imagine the laughter that would ensue if most of us said to our bank teller, "Hey, I forgot to budget properly because I was busy -- can you cut me a break on some of these fees."

But then that's the point. Many credit unions on campus recognize that students aren't quite adults in the real world, and they'll cut them some slack that their older counterparts rarely, if ever, get.

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