Why the “official bank” of your campus is likely the wrong bank to do business with

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Why the “official bank” of your campus is likely the wrong bank to do business with
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When you’re at a college, have you ever noticed there seems to be one bank that has a lockdown on all the ATMs at the student centers, in the dining halls and everywhere else on campus?

Chances are your school has forged an ‘official bank of…’ relationship with that institution. And while that partnership may be in the university’s best interest, it’s seldom in your best interest!

Read more: The ultimate free and cheap guide for college students

The problem with official banks

Universities used to view their relationship with students as being in loco  parentis, which is Latin for in place of the parent. College administrators knew they were dealing with young and impressionable late adolescents. So they saw it as their duty and obligation to properly steward them. Today, however, it seems like colleges see their students as someone to exploit.

Students are known for racking up late fees on credit cards and being hit with overdraft fees when they spend more money than they have in their account.

The Consumer Financial Protection Bureau reports that some 40% of those 18 to 25 years old pay at least one overdraft fee each year. That’s compared to just 15% of people 62 and older. In fact, college kids tend to amass $250 or more annually in overdraft and NSF charges when they use campus-sponsored official banks.

And back when the banks were allowed to hand out credit to college students like they were handing out candy, some of our nation’s biggest financial institutions were notorious for buying lists of home addresses, phone numbers and other personal info so they could push debt directly to young people.

In fact, Bank of America reportedly paid $8.4 million in kickbacks to Michigan State for names, addresses and the right to use the university’s logo in marketing materials.

And that’s just the tip of the iceberg. The school reportedly also got $1 for every new credit card account that remained open for 90 days; $3 for every account that racked up an annual fee charge; and $3 if the the card had a balance after one year.

It was tantamount to rewarding the university for getting its students into credit card debt. And that’s just at one school!

Why the 'official bank' of your campus is likely the wrong bank to business with

What should you do instead of using the official bank?

You have several alternatives if you don’t want to give in to the big-bank hegemony on your campus.

Credit unions

What exactly is a credit union? It’s like a bank in which you can be a shareholder. There’s typically a nominal fee to become a member and once you join, it’s like you take a step up to the mezzanine of the financial world with a ton of great products at your disposal.

You have access to all the usual services you would with a giant bank, including ATM cards, savings instruments like CDs and more. And while credit unions may still have rip-off charges for overdrafts on your savings or checking accounts, they’re usually lower than elsewhere.

In addition, credit unions offer interest rates on credit cards that are up to 8% cheaper on average than the big banks, according to Datatrac. That alone can add up to big bucks in savings each month if you carry a monthly balance.

Customer service is outstanding with most credit unions — with some limited exceptions. The one thing you don’t get with a credit union is convenience. Credit unions typically don’t have as many branches as the giant banks and they may be fewer and farther in between.

Visit ASmarterChoice.org to find a credit union to join.

Online banks

Online banks are free to use, generally don’t have surprise gotcha fees and are winning rave reviews from customers.

In general, online banking appeals to younger folks who don’t want branches or even to look at someone face-to-face when they do their finances.

Below is a list of a few online banking possibilities. Many of them have no fees at all and offer free use of partner ATMs so you never have to pay an ATM withdrawal fee again.

By the way, did you know that the average fee to withdraw money as a non-customer from a foreign ATM was $4.57 last year? That’s according to Bankrate’s 2016 Checking Survey and it’s up five cents from the year before.

Think of all the money you’ll save if you never have to pay an ATM fee again!

Small local community banks

Small local community banks can be the equal of credit unions in many respects. But here’s one caveat: If you’re planning to get a credit card, you might want to skip this option. That’s because small local community banks generally just piggyback off the existing credit card programs of the big banks and simply re-brand the cards, according to Clark. But for everyday banking on and around campus, they can be a viable option.

Read more: Nearly 25% of Americans are making this costly money mistake

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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