You’re heading off to post-secondary school. Congratulations! There are great banking offers for students that you can take advantage of and this is also the time to apply for your first credit card and maybe student loans as well. These are the first steps to establishing your Financial Health. Here are some tips to get you on the right track for your student banking and for your future finances.
Student Bank Account
Let’s start with your bank account. Do you already have your own account with a bank? Then there’s no need to change it. You simply need to provide your bank with a confirmation of enrollment and they will set your account up for a student banking plan. Each bank differs as to the number of transactions you’re allowed and the types of transactions. Some have free plans with a limit of 25 transactions, others have unlimited. If you do a lot of transactions you may want to switch banks to get an unlimited plan. If your bank limits transactions you need a more expensive plan than the basic student plan, you’ll still get a discount on your plan. But it’s best to stick with the free plan to save money on your fees.
Reduce your transactions to Save Money
Pretty much everything that goes through your account, other than service charges and interest, counts as a transaction. This means every deposit, withdrawal, debit card purchase, transfer, and bill payment. To save money and stick with the free plan, limit your transactions. If you like to use cash, withdraw enough for the week instead of withdrawing 3 times a week. Don’t use your debit card to buy coffee every day!
The free student plan won’t cost you anything unless you go over the allotted transactions. This can get expensive so monitor your account carefully to make sure you stick to your transaction limit.
Your student plan will be set up to expire after your graduation date. Once you graduate let your bank know. They will usually extend your free banking for another 6 months to a year when you do this! And, if you continue your education make sure to provide the new graduation date to your bank so that you continue to get the discount.
Opening a New Bank Account
When you start up a new account there are a few things to consider. Banks differ slightly in their offers so do some research on bank plans to see what suits your needs. Greedy Rates is a site I find very useful to compare accounts. When you choose your account the most important thing to consider is how you like to do your banking. For example, some accounts offer unlimited transactions but charge a fee for e-transfers so if you use e-transfer a lot then make sure your plan has free e-transfers. Also, pay attention to what fees are extra. If you like to have cash in your wallet then consider the location of your bank, or at least access to a bank machine. Anytime you use an ATM other than your own bank, you will be charged an extra fee. This can add up over a month!
Managing your Bank Account
Once you set up your account make sure you check your service charges each month. You can do this quickly and easily through online banking. If you’re getting any extra charges on your account that you were not aware of then talk to your banker and they will make sure you get set up on the right plan. As long as you check your charges regularly they will reverse some fees for you. For more information on your account operation and fee reversal refer to my Bank Fees post.
Starting a new account is the time to establish a good relationship with your bank, which will determine a number of things in the future such as whether the bank will lend you money and even your Debit Card Limit. A good relationship with your bank starts early so you don’t want to be overdrawing your account and having payments returned NSF.
TIP✅ If you have a savings account, credit card, or Student Line of Credit then make sure you set up Overdraft Transfer service as a precaution so that payments going through your account don’t get returned. Payments or cheques returned NSF (insufficient funds) not only cost you a lot of money but it also damages your relationship with the bank and that can be detrimental in the future.
Student Credit Card
Having a student credit card is a great way to start working towards a good credit score. This is critical for any future borrowing. There are banks that offer student credit cards that do not require any income or established credit to apply. You will automatically be approved for a small limit ($500) as long as you don’t have any previous poor credit history. Make sure you make your minimum monthly payment on time and you are on your way to establishing positive credit history. If you’re not good at remembering to make your payments you can have them set up to come out of your account automatically.
Ideally, you should only use credit cards as a method of payment and not keep an ongoing balance owing. Credit cards have high interest rates so any money borrowed will have expensive interest charges. And if you overspend and can’t pay the money back it will damage your credit.
Credit Card Grace Periods
There is a “grace period” on credit cards which means that if you charge money on your card and pay the Full Balance within the “grace period” you will not have to pay any interest. The grace period is usually 21 days from the statement date. Because credit card interest is expensive it’s best to always pay your balance in full if possible. If you find that you are always carrying a balance on your card then try and apply for a student loan or Student Line of Credit to pay it off because the interest rate is lower. Note that, unlike purchases, there is no grace period on cash advances so interest charges will start immediately.
TIP✅ Be careful when you use your card for online purchases or sign up for free trials. There are built in agreements where you are sent monthly merchandise after your first purchase and your card is automatically charged, or when your free trial ends payments start being charged to your card. Always read the fine print, and check your bank accounts and credit card transactions regularly. Online banking provides you with access to all the details.
Credit Card Perks
You will also get to decide on which “perk” you would like attached to your credit card. Cash back, points, or Air Miles are most common. Stick to the NO FEE credit card option while you are in school and upgrade later if you want.
Points or Air Miles will accumulate on all of your purchases and then you can redeem them for travel, hotels, merchandise and gifts by going online and choosing how you want to spend them.
Cashback on a no fee card is usually 1% of purchases. You can have money automatically sent to your bank account annually or you can redeem your cash by going online. Whatever you choose, it’s all free stuff so take advantage!
TIP✅ The best way to accumulate lots of points, Air Miles, or cashback is to use your credit card for every possible purchase and then log into your online banking right away and pay it off. By doing this, you will not have to pay interest. You will also build a good credit rating along with getting lots of free stuff.
Need help financing your education costs? You can borrow by getting Student Loans through a government program or you can get a Student Line of Credit from your bank. You may need both depending on your expenses. When you get a Student Line of Credit from the bank, in most cases you will need a co-signor. Talk to your parents/family to see if they are willing and able to help you out. Both you and your parents will need to apply and be approved for the line of credit. If your co-signor is able to qualify, the bank will approve the maximum amount available for your field of study and you will be able to draw against the credit line each year as long as you are in school.
How a Student Line of Credit Works
Let’s say you are planning for a 4 year education degree. The maximum line of credit amount the bank will approve for a standard degree is $45,000. If you and your co-signors qualify, the bank will approve the $45,000 which can be drawn over a 4 year period. You can draw a up to a set amount for each year, and carry over any amount you don’t use to the next year. You only have to apply once, but you will need to provide the bank with your confirmation of enrollment each year to be able to draw on the credit line each year.
Example of Yearly Draws
|Max Yearly Amount||Partial Draw||5 Year Draw||Carry over Draw|
Note that each year you can draw any amount up to the maximum cumulative allowed. So in scenario 3, you could draw $25,000 in year 2 because you didn’t draw the allotted $15,000 in year 1. Scenario 2 is an example of when a program is extended over 5 years. If you haven’t used your maximum approved amount, you can draw it in year 5 if you are still going to school. You will need to provide the bank with an enrollment confirmation to do this.
TIP✅ Only draw as much money as you currently need from your line of credit because you are charged interest daily. For example, if you draw $10,000 at the beginning of the year and put it in an account, based on a rate of 4.0%, your interest cost for 1 year is $400.00. If you instead draw $833 from the credit line each month for a year, your interest cost is about $214.00. Savings – $186.00
While you are in school and for up to 2 years after you will only need to make interest payments on your balance owing. After that, you will need to start repaying the principal balance. Banks differ in their terms for how long you can pay interest only once you are done school and on the repayment terms so check out this information when you take out the loan.
The above example is for a standard 4 year degree. For longer degrees such as Law, Pharmacy or Vet Med the credit limits are higher. For Dental and Medical school Credit Lines you typically do not need a co-signor if you are attending school in Canada and the interest only period is extended through residency. You should be able to get Prime rate on your medical or dental student credit line and you should not need a co-signor. If your bank doesn’t offer this, shop around.
Not everyone likes to budget but it’s a must for students with limited money. There are many good free budgeting apps from simple tracking to extensive spreadsheets so pick one that you will stick with. Your bank’s online banking app will have have some great tools like Alerts or Notifications, Spending trackers, and a Credit Score checker so if you want to keep your budgeting simple you can just use the bank app.
Set your budget at the beginning of the year and stick to it. It’s really easy to over spend if you have access to credit and you’re not keeping tabs on your expenses. Always add in a cushion for extras because there are always unexpected expenses.
It may seem odd to talk about investing when you are a student but starting to invest early is one of the most important and overlooked wealth tips of all time. If you have a summer job or part-time work and you can manage to save even $25 every two weeks to start, the long term benefit of doing that is astounding. This is the magic of compound interest and it should not be underestimated!
One book I read early on that had simple lessons that stuck with me, and really worked, was The Wealthy Barber. Here’s a list of some other great personal finance books to get you started.
To see a quick example of how starting early and compound interest works, plug some numbers into this calculator to see.
The world of investing can feel overwhelming so start simple with a savings account. See a financial advisor and slowly gain knowledge of the various investment options. And don’t be afraid to ask lots of questions, that’s what your banker or advisor is there for! When you are starting out, avoid any type of riskier investments such as stocks or any investments that have fees of any kind.
This summarizes the student banking offers available. If you have specific questions please send a message or comment. Share with friends if you have found this helpful!