On money

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times,
published August 5, 2001

Setting up a bank account for your college-bound child Q. What is the best way to set up a bank account for a child going off to college?

A. Modern technology makes banking away from home easier than ever. It's just too bad that coming up with the cash to deposit in the account hasn't gotten any easier!

When I set up an account in June for my daughter, a college freshman, we made our choices based on cost and convenience.

Because we didn't want to get stuck with fees for using other banks' ATMs, our first requirement was ATM accessibility. We considered only banks that had an ATM available at the student union or bookstore and that also had ATMs in St. Petersburg. If your child will live off campus, you have more options, but convenience still will be important.

Our goal was to find a simple, low-cost checking account with no minimum balance and a check card my daughter could use for shopping instead of a credit card. Many banks offer basic no-frills accounts, so we had some research to do.

Although I did my research online, it also could be done by telephone. I drew a grid on a sheet of paper to make it easy to compare notes on each account's monthly fees, extra charges and special rules. If any banking promotions arrive in the mail, be sure to take a look at them. Some of the mailings we got contained better deals than those I found on the same bank's Web site.

Each bank has its own configuration of fees. For example, at one bank we could get a deal with no monthly account fees but an $8 charge every time you used a teller for a transaction that could be handled at an ATM, online or over the telephone. Depending on whether your child is likely to use a teller, that could be the best or the worst deal available.

After you have chosen a bank, you will have other decisions to make. Here are some points to consider:

Open the account in your name and your child's. That way you will have your own ATM card and easily can make deposits and (theoretically) withdrawals.

Order checks imprinted with your child's name, but consider leaving off the address. College students move frequently and you don't want to have to pay for new checks every time.

Get a separate ATM/check card even if your child's student ID could double as the bank card. While it is simpler to have one card, losing that card creates double the problem.

Q. Our child did not qualify for financial aid, but we don't have enough money to pay the bills. What is the best way to borrow for college?

A. The two best sources for parents who need to borrow are PLUS loans and home-equity loans. PLUS stands for Parent Loan for Undergraduate Students. You can borrow up to the entire cost of college. And although you do have to qualify for credit, you do not have to meet income requirements or put up any collateral. The loans have a variable interest rate, currently 6.79 percent.

Information about PLUS loans is available from college financial aid offices and lenders, including Sallie Mae (http://www.salliemae.com).

The advantage of a home-equity loan is that the interest is tax-deductible. Just remember that you are placing your home at risk if you are unable to make the payments.

Some parents borrow against their retirement plans, but I consider this a last resort rather than the best option. If you possibly can, it is better to let that money keep growing for your own future.

Online money map

How much will it cost to send your little ones off to college? If college is still some years away, you can shed some light on future costs by using one of the college cost calculators available on mutual fund and personal finance Web sites. At T. Rowe Price (http://www.troweprice.com), click on "college funding" and then on "college cost calculator." You can get the Fidelity Investments (http://www.fidelity.com) version by clicking on "college planning," then "parents" and "college cost calculator."

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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