Banks get failing grade on student checking accounts

If you're a new college student -- or the parent of one -- you shouldn't trust the local branch of your bank to point you to the most suitable checking products.

A friend recently related the story of a student who set up a checking account at a Baltimore area branch of Bank of America. The bank rep never mentioned the most appropriate option for a college freshman -- a no-frills ATM card -- and steered the student toward a Visa Check Card.

Unlike a basic ATM card, a check card can be used for point-of-sale (POS) purchases as well as ATM withdrawals. And, unlike the basic ATM card, a check card allows the student to make ATM withdrawals even when there is no money in the account. And each time it happens – ka-ching! – the Bank of America collects $25 to $35 in overdraft penalties.

As for my friend's story, here's the unfortunate result: over Thanksgiving, the student made a $60 ATM withdrawal and six small point-of-sale purchases totalling about $30. Seven transactions totalling about $90 generated $215 in penalty fees.

To be fair, Bank of America is not alone: all of the other banks seem to do the same thing. As a comparison, I just visited branches of Wachovia and Citibank in the BaltoNorth area and asked them what they would recommend for a student checking account. None of the three mentioned basic-ATM cards anywhere in their brochures. None of the three mentioned basic ATM cards in one-on-one conversations, even when asked for alternatives to check cards.

So, be aware that all of the banks seem to steer you to products that generate more penalty fees for themselves. All banks, even when dealing with their least knowledgeable customers, seem to forget to mention the products most likely to lead to responsible money management.

Buyer beware.

UPDATE: Bank of America's single nod to the likelihood that 18 year old students might mismanage their checking account is to sell the student another product -- an overdraft account -- and give them a ridiculous Stuff Happens® card.

Of course the wiser more-ethical path would be for banks to promote the basic ATM card that leaves no possibility of overdrafts. This product brings home very clearly to the student that a zero balance means you can't take any money out.