A checking has many potential benefits for a college student – especially when it comes to paying for everyday expenses like books, groceries, and all those trips to the coffee shop. But there are also some questions that come with the possibility of opening a checking account – such as how a checking account might compare to a prepaid card.
Checking accounts vs. prepaid cards
Checking accounts and prepaid cards essentially function in the same way – that is, through a debit of funds from an account. Checking accounts offer many different options for accessing your money, including ATMs, debit cards, and paper checks.
Used responsibly, a checking account is an excellent way to manage your money and yo ur spending. Checking accounts offer the option for account holders to write checks, as well as enroll in electronic bill-pay programs, which can be convenient for many students.
However, checking accounts can also lead to excessive fees if they are not managed well. Many checking accounts offer account holders the option of overdraft protection. Overdraft protection means that if you withdraw or spend more than the amount available in your checking account, the transaction will still go through as paid. However, overdraft protection has fees attached to it – so while you'll be protected from declined transactions due to insufficient funds, you'll owe the amount advanced, as well as additional fees. And if you don't carefully manage your checking account, these fees can really add up.
Prepaid cards do not carry the risk of overdraft fees because only the amount that's loaded on a card can be spent. If you attempt to use a prepaid card with insufficient funds for a purchase, the transaction will be declined. The benefit is that the account will not incur any overdraft fees.
That being said, prepaid cards aren't exempt from fees either. One fee associated with prepaid cards is an inactivity fee, which is a fee incurred if a prepaid card isn't used for a certain period of time. Another is a fee to check a card's balance. Some prepaid cards also have fees for transactions. While overdraft fees aren't an issue with prepaid cards, card holders need to keep track of how they use their cards so that they don't incur other fees. A prepaid card is a good option for a student who has yet to build any credit and who doesn't want to get a checking account.