Savings/Checking Interest

[alabamagal]

We are trying to find the best options for checking/savings account for my son who is in college (2nd year in the fall). He has been very responsible with his money (no worry about him blowing it all at once)and we want to keep things fairly simple for him, maybe 2 accounts at most. He also has expressed a desire to have something that earns him interest (he will be majoring in finance!). So here are the options:

At the start of the school year, he should have ~$8000 after he gets his school refunds for scholarships plus his money saved from working all summer. This money will be used for his housing (~$250 per month) and food. He will get more money for spring quarter, plus we contribute if needed so I am not worried about him running out of money.

He wants to set a fall budget and put the rest of the money into a 3-month CD. The rates are terrible. For tieing his money up, he would get a few dollars. We discussed this.

Savings account would get him 1% with ING. He could manage this online. I am ok with this option, but the rates are still pretty bad. He would get about $6 a month to start out (would decrease as he spent money). He would keep his free student checking account for daily use.

Our bank offers a checking account with 2.5% interest, no minimums, free ATM, you just have to do 12 check card transactions and have auto deposit or payment. The check card transactions he would do anyway. The problem is he probably doesn't have any auto drafts. He pays his rent/housing expenses to roommate via check. So I was thinking I could set up my phone/internet payment (~$40) through his checking and transfer that amount to his account ( it is actually joint account) online with a few mouse clicks every month. He would start out getting ~$15 a month interest. He would change his current account to this (one phone call).

So what option is best? Am I teaching him the right thing about money?

[yogiii]

I'd just do the ING account, yes the rate isn't that great but it would be his.
I don't think it's worth the extra $9 a month to have your stuff co-mingled with his.

[midjd]

I agree. I think online savings are good for college students (even those who are responsible with money, as it sounds like your son is) because it takes a day or two to access the cash. He should be able to transfer to checking as he needs it, no problem.

My mom has a commingled account with my 21yo brother and it has caused nothing but headaches (and overdraft fees). Again, even if your kid is responsible, I don't think it's worth it for $9/month.

If he's looking for a bigger ROI, could he invest $500 or so in the market? That would be a small enough percentage of his assets so losing some wouldn't hurt him, but he has the potential to earn more than $6/month... also a great way to learn about finances, compounding, etc. while still young

[mtntigger]

you just have to do 12 check card transactions and have auto deposit or payment. The check card transactions he would do anyway.

I wouldn't count on this. Yes, that's only one every 2 or 3 days, but in theory he is at school and studying instead of buying beer and eating out all the time. He may end up using the card to meet that number or paying the monthly fee for not meeting the minimum requirements which would defeat the purpose of getting the account.

[alabamagal]

Jun 21, 2011 9:34:17 GMT -5 @mtntigger said:

you just have to do 12 check card transactions and have auto deposit or payment. The check card transactions he would do anyway.

I wouldn't count on this. Yes, that's only one every 2 or 3 days, but in theory he is at school and studying instead of buying beer and eating out all the time. He may end up using the card to meet that number or paying the monthly fee for not meeting the minimum requirements which would defeat the purpose of getting the account.

All of my kids use their debit card for EVERYTHING. They do not use cash. Since my son eats on campus, there is at least one debit transaction per day. Failing to meet the requirements for the interest bearing account does not result in any fees, they just drop your interest for the month from 2.5% to 0.1%.

As to the issue of mingling finances, our finances will be connected for the entire time he is in college. He has his own money and is responsible for certain items. We would just need to find a way for one auto debit per month. We actually do this quite a bit already. He is going to the eye doctor tomorrow and will use his debit card to pay, then I will reimburse him via on line bank transfer once he brings me the reciept.