By Jean Chatzky
As if college isn't expensive enough — and at an average $24,610 for a year at an in-state public college and twice that at a private one — today's college students seem intent on adding substantially to their bills. The culprit? Overdraft and late payment fees. Over four years of school, those charges add another $1,016 for the average student, according to NerdWallet. In total, U.S. college students spend more than $795 million a year on overdraft and late payment fees. And every penny of that spending is unnecessary.
So, if you're sending a child off to school this fall here's what they need to know to keep the money in their bank accounts — where it belongs.
SKIP OVERDRAFT “PROTECTION”
Overdraft protection can be a misnomer, says millennial money expert Stephanie O’Connell. Essentially, the "protection" is assurance that if you pay for something, your purchase will go through even if the money isn't there. But no one is protecting you from overdraft fees. The average bank overdraft fee is currently $35, at credit unions it's a somewhat more reasonable $27.76, according to to a Bankrate.com survey.
To make matters worse, some financial institutions reorder your day’s transactions from highest to lowest amount (rather than in the time order in which you make them), so that if you do overdraw, you may end up paying more than one fee (once for the high charge if it’s more than your balance, then once for each lower charge after that). This can really add up. “If you got charged three overdraft fees in one day, you’re paying $100,” says O’Connell. “What else would you want to do with $100?”
THE FIX: Don’t sign up for overdraft protection — and if you’ve already got it, call and opt out. “You could buy a $5 sandwich and wind up with a $35 fee for it,” says NerdWallet personal finance columnist Liz Weston. Opting out means that if you do try to buy something your balance doesn’t cover, your debit card will be declined — but a moment of embarrassment at checkout is likely worth the high-fee alternative. One key thing to remember: If you opt out of overdraft protection and have a credit card, it’s important to make certain you have enough in your checking account every month to pay the credit card bill. If you don’t, your payment will be declined, and a late or missed payment can result in higher fees, interest rates and a lasting impact on your credit score. More on that in a minute.