Saving for college and while in college can seem like a daunting task. There are so many other things to be concerned about, right? Books, tuition, adjusting to living on your own.
Believe it or not, you should also consider savings account for college students. This is a great time to start establishing a savings plan without the added pressure that comes along after you graduate.
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How does a savings account for college students work?
Numerous savings accounts allow for some wiggle room for students such as no minimum balance to make saving easier but at its core, you want your savings account to be a safe place to set your money aside without the temptation of spending it.
If you’re under 18 years old, you might need to include your parents and/or guardian to be a co-owner on your account depending on where you open the account. You might need to bring a minimum to deposit into your savings account when you open it.
There are some accounts that do not require a minimum balance on student accounts, but you might need to bring proof that you are currently enrolled in school. This could also be done online which makes the process so much easier.
Once the account is opened, you’re set to start saving. There are also accounts that can be set up by parents, long before college is discussed that help set a child up for financial success.
These accounts are typically driven by parents or loved ones and given to the child once they come of age.
What makes a good savings account for college students?
There are tons of places that offer savings accounts for college students but it is important to keep in mind that not all college student accounts are created equal. Here are some factors to consider before setting up your account.
No minimum balance
College can be a time of uncertainty, especially when it comes to finances. No minimum balance requirement is a factor to consider for college students because it helps take away some financial uncertainty. If you absolutely need to transfer or withdraw some of your funds because of a food emergency, having the flexibility to not worry about maintaining a minimum balance can be refreshing.
Automatic transfer feature
Similarly, saving can be hard even if you have the funds on hand. Having the option to auto-transfer funds from a different account into your savings account can help you save with ease. This takes that task out of saving, especially as a busy college student or even as a parent. This is also a helpful option because it allows caregivers to contribute to the savings account as well.
Interest rates play a major role in adding a little incentive to saving. Interest rates are on the lower end but they do help your money grow a little. You could consider a credit union savings account as they tend to have higher interest rates. Though interest rates are not the sole purpose of a savings account, as other types of accounts might yield higher interest rates when comparing accounts with different providers a higher interest rate could be the tiebreaker.
Having access to your funds is important. Whether you want to track your progress, you need to use your cash in an emergency or to verify your account balance, being able to quickly gain 24 access is an important factor to consider in your savings account.
There is also the possibility of using the account for overdraft protection if it is linked to your checking account. Being able to make transfers at any time, no matter where you are is key to securing your finances.
MoneyLion Safety Net allows similar accessibility. You are able to see your available funds all at once and keep track of the ins and outs of your account.
5 best savings accounts for college students
There are options outside of the traditional savings account to help you save for college and while in college. Here are a few types of college savings accounts to consider.
Standard savings account
A standard savings account is offered at most banks and credit unions. College student-specific savings accounts tend to offer additional benefits.
Best For: This option is best for all college students. A savings account can be opened even if you don’t have an existing checking account and most can be opened online.
Benefits: Standard savings accounts are easy to open which is beneficial for a college student. Also, they tend to have little to no fees to open and/or maintain the account. There is also a little risk with a savings account. Your money is safe and aside from potential fees, if they apply, you do not run the risk of losing your money.
Disadvantages: Conversely, low risk can also equal low reward. Standard savings accounts typically have low-interest rates. Though this might not be the primary reason to save, getting more bang for your buck is a nice option. Interest rates are also variable so they can change at any time. Finally, the accessibility of a savings account might tempt you. Being able to see your funds and transfer your funds at any time could make it harder to save.
Fees: Fees depend on the type of account. There could be a minimum balance requirement and a fee if the minimum is not maintained.
Penalties: You are limited to 6 transfers per month from savings account under the Federal Reserve Board Regulation D, exceeding 6 transfers could result in your savings account being shut down. Some banks may have a lower limit to prevent this from occurring.
Tax considerations: You will receive a 1099 at the end of the year if you accrue over $10 in interest in your savings account.
529 college savings plans
There is a lot of information about 529 plans but they are essentially investment accounts established to cover educational costs only. Educational costs can include not just tuition but also items needed for schools such as books and a computer.
Best For: This savings plan is best for students that have a parent or guardian contribute to the account, preferably prior to them entering college.
Benefits: You get the most out of your 529 plan if you are contributing higher amounts. The limits do vary by state. On the other hand, you do not need a large investment to start a 529 plan. Finally, 529 plans do not tax withdrawals meaning you can get your funds and not worry about paying for it later.
Disadvantages: 529 plans have explicit rules on what they can and cannot be used to fund. A 529 can only be used on educational expenses, otherwise, you will be required to pay a penalty.
There are also some limits to 529 plans depending on your state, meaning the state of the student using the 529 plan, not the contributor. It is important to stay up to date on the limitations.
Also, the account owner has control over the 529 plan, not the beneficiary. Though the account owner can be changed, the student is typically the beneficiary of the account and would need to consult the account owner for changes. This takes away from the accessibility and flexibility of the savings account.
Fees: There is typically an annual maintenance fee associated with 529 plans. Also, be prepared to pay a maintenance fee which is usually a percentage of the funds.
Penalties: There are penalties for using the funds of a 529 plan for anything other than educational funds. 529 plans charge a 10% fee for the use of any unqualified funds.
Tax considerations: You are responsible for the taxes on funds withdrawn from the account which can vary by state. The taxes are paid annually and only when funds are withdrawn from the account.
MoneyLion Safety Net account
Safety Net allows you to see all the ins and outs of your finances in one location. Safety Net also lets you “round up” purchases. This is a quick way to send a few extra coins to your investment accounts.
Best For: This is best for students that are working and parents.
Benefits: One great benefit is you have all your banking in one place. This helps to stay on top of your finances. The accessibility also allows for investment options. You can transfer easily between your accounts or even add money into an investment account.
Disadvantages: Safety net does require direct deposit which could be challenging for a student if you do not have consistent income. However, in between pay days you can access Instacash up to $1000 at 0% APR.
Fees: There are no direct fees associated with maintaining a Safety Net account. There is a direct deposit requirement.
Penalties: There are no penalties.
UTMA or UGMA for minors
A Uniform Transfer to Minors Act (UTMA) account and a Uniform Gifts to Minors Act (UGMA) account are both custodial accounts that make it possible for minors to receive gifts, like money, investments, or real estate properties.
Best For: Best for parents to establish a UTMA or UGMA if you’re looking to provide your minor with larger assets.
Benefits: UTMA and UGMA accounts, though different, have very similar benefits. Both have no contribution limits. Also, both accounts allow anyone to contribute.
Disadvantages: Both custodial accounts can affect how much financial aid your student is eligible for as both accounts count towards the beneficiary’s income. Additionally, the beneficiary can be responsible for the taxes on the assets.
Fees: There might be a minimum balance required to open the UTMA or UGMA account. This could vary depending on where the account is opened.
There also could be trade fees associated with transactions in the custodial accounts. Fees could be as low as ninety-nine cents per transaction. Some accounts have zero trade fees.
Penalties: There are no penalties for withdrawals or transfers. It is important to note that once funds are transferred into the custodial accounts, they are irrevocable.
Tax considerations: There are some tax benefits and tax implications for the custodial accounts. Generally speaking, the first $1,050 in earnings are tax-free for both accounts. Additional earnings are subjected to taxes.
Coverdell Education Savings Account
A Coverdell Education Savings account (Coverdell ESA) is a custodial account that is used for paying education funds.
Best For: Best for parents who make less than $95,000 as a single tax filer or between $190,000 – $220,000 as a joint tax filer and want to use cash aid in funding the education of a minor.
Benefits: A Coverdell ESA allows for tax-free withdrawals for education-related expenses. They can also be used for K-12 educational expenses.
Disadvantages: Coverdell ESA contributions can not exceed $2,000 per year, to some this could be limiting. If a joint couple makes more than $220,000 annually, they are ineligible for a Coverdell ESA.
Additionally, due to this limitation, not everyone can contribute to the account. A percentage of the account is factored into your child’s financial aid eligibility. Similar to a 529 plan, you are limited to qualified educational purchases.
Fees: There are only fees associated with using funds for unqualified purchases.
Penalties: There is a 10% penalty if the funds are not used for qualified education purchases.
Tax considerations: Not only is there a 10% penalty associated with funds that are used for unqualified purchases, you are also subjected to taxes on the portion used.
Every little bit helps
No matter how much you are able to put aside as a college student or for your college student, every little bit helps. With the rising cost of college and the constant economic changes, having at least an emergency fund is helpful.
There are so many options to save or even invest that don’t even require you to wait until college. But if you do wait until then to start saving, that’s okay. You might consider more aggressive options such as investment accounts.
Though investment accounts can yield greater returns they can seem a little intimidating to some and MoneyLion understands. With our RoarMoney account, Safety Net feature and auto investing, we’ve bridged the gap between banking and investing.
You just pick an amount to invest and MoneyLion does the rest of the work for you. Saving for college and while in college can be stressful, but plan as much as you can to help reduce the stress and MoneyLion can help.
How much should a college student have in a savings account?
Honestly, it depends on your goals. At this point, the priority should be having an emergency fund but your savings account can set the foundation for your financial future.
What percentage of students cannot afford college?
According to CNBC, 56% of students can no longer afford college tuition after the pandemic.
How much is the average tuition for college?
The average cost for college in the US is $35,720.