Bank Account and Credit/Debit/Charge Card Questions

[larusso]

This is my first post, so hello everyone. I'm sorry if these questions make me sound naive, but for the most part I'm pretty ignorant about all this stuff. I wasn't sure if this belonged in Personal Finance or Investing and Banking, but based on the different topics I saw in each, I thought this was the best place to put it.

To give you some quick background information, I'm 19 years old, I have graduated from high school and am planning to attend college in the fall. I've already received some acceptance letters and scholarship offers and my parents have agreed to pay for college, so I won't need to take out any student loans. I live with my parents, and work around 30-35 hours per week, at $8.00/hour before taxes.

I have around 1,000 dollars saved up, but the problem is, right now, the money is just sitting in a shoe box. I wanted to open a bank account and possibly get a credit card to make some purchases, but when I looked into it, there were so many options to choose from that I really had no idea what to do. So I just kept putting it off. The banks near me have 3-4 different kinds of checking accounts, 3-4 different kinds of saving accounts, CDs, and then if I decided to get a credit card there's a ton of different kinds of those as well.

To give you an idea of what my spending habits are, and what I'm looking for: I usually spend ~$20-30/week on food, going to the movies, gas, and things of that nature and the rest just kind of goes to the shoe box. I'm pretty good at "managing" the money I have: I don't spend more than I have, know how much I have, and keep track of where I spend it. The main things I'm looking for are a way to store my money, and a method of making purchases online or that exceed what I feel comfortable carrying around. I don't see myself taking money out of an account more than once a week, and it will probably be slightly less often than that. I suppose the main issue is finding something that has as few fees associated with it as possible. I know a lot of things like that require a minimum balance, which is something I could live with, but when I looked for a "fee-free" checking account the lowest minimum balance I saw was $2,000, which is more than I currently have, and most likely something I could not keep as a minimum balance.

The main fear I have about about a credit card is, how will it affect me down the road? I don't plan on paying the minimum for months on end. Any purchases I make I plan on paying in full when the bill arrives, I don't see myself even making purchases with money from future paychecks. It's mainly a convenience issue with online or large purchases, but I'm still not sure if this would have any consequences. I've looked into debit/charge cards as well, but they look like they carry some fees whenever you take money out or make purchases, so I'm wondering if that is indeed the best option. Between now and when I stop working and go to college I would estimate that at most I'd make 5-6 purchases that required a credit card.

Thanks in advance for any advice

[sweeps]

There should be banks near you that offer free checking with no minimum balance. They may even be designed specifically for college students. If you can't find such a bank, seek out a credit union.

The only thing is is college far from home? You may want to get a checking account at a bank near your school.

I'm not a fan of debit cards. If you think you can handle the responsibility of a credit card, go for it. You'll earn a small reward for your purchases and you'll start to build up a credit history. Just be doubly sure that you only charge things that you can afford and you always pay your bill in full.

[larusso]

I haven't made the final decision about college, but most of them are close-by, the farthest is a 4-hour drive and the rest can be reached in around 2 hours. I haven't thought about looking for a bank with a branch near the college though, but that is definitely a good point, thank you.

I definitely think I can handle the responsibility, I'm not planning on going on any major spending sprees and for the most part it would be just for making purchases more convenient. What are your objections to a debit card? To my understanding when using a debit card the money is taken from your account, while when using a credit card you're making a temporary loan and then paying it back. If you make payments on time, I don't understand what the difference is, or the advantages to using one over the other.

[sweeps]

If a debit card is lost or stolen, a thief can drain your checking account. Sure, you can probably straighten it out after several days, but not without substantial pain and effort. In the meantime you may not have any available funds for necessities and you may bounce checks. Also if a merchant accidentally enters the wrong amount to debit ($555 instead of $5.55), you will experience similar problems.

If this happens with a credit card, your checking account remains untouched. You can dispute the charge(s) and get them fixed before any harm is done.

Also credit cards generally reward you with points and cash, whereas debit cards generally do not. And using a credit card builds up your credit history. Debit cards do not.

[Like2Plan]

To give you some quick background information, I'm 19 years old, I have graduated from high school and am planning to attend college in the fall. I've already received some acceptance letters and scholarship offers and my parents have agreed to pay for college, so I won't need to take out any student loans. I live with my parents, and work around 30-35 hours per week, at $8.00/hour before taxes.

I wanted to open a bank account and possibly get a credit card to make some purchases, but when I looked into it, there were so many options to choose from that I really had no idea what to do. So I just kept putting it off. The banks near me have 3-4 different kinds of checking accounts, 3-4 different kinds of saving accounts, CDs, and then if I decided to get a credit card there's a ton of different kinds of those as well.

The main fear I have about about a credit card is, how will it affect me down the road?

When DS went off to college (Fall '06), there were several merchants offering services at tables at his college. The banks offered special fee free college student accounts. DS opened up an account and received a $25.00 bonus in his account for signing up. They also gave him a debit card and a CC.

If you sign up for a CC, it helps to establish your credit history. If you pay it off and are not late on the payments, you establish a good credit history. I totally agree with sweeps on the advantages of using a CC for purchases (as opposed to a debit card)--as long as you pay it off each billing cycle.

One thing that might influence your decision in bank accounts is whether your bank will have an ATM machine on campus-so you don't have to pay a fee. I think it is handy to have a debit card to use strictly for weekly cash withdraws. It would be a pain to have to pay $3.00 fee on each $20 weekly allowance transaction. The other thing a lot of young folks just starting out don't realize is that it is still possible to overdraft your account using a debit card. Yep--some banks will advance you the money for a fee. And the fees are punishing.

[larusso]

While I don't plan on losing a debit card (not that anyone would), all the other advantages do make a credit card seem like a better choice for me. Thank you for all the information.