Source: Nazareth College.
It's back-to-college season, and parents are weeping (or
celebrating) as their college freshmen head off to school. One of
many things they'll have to learn about as they start to navigate
life on their own is how to handle their finances responsibly,
and a credit card can be a great tool toward that end. Three card
offerings stand out above the rest for students -- and for
investors, there's one bank in a good position to use the
relationships developed on college campuses to help expand its
Should you send your student with a card?
Whether credit cards are harmful or helpful is the source of much
deliberation in households across America. While cards can be
overextended and harmful in a variety of circumstances, they can
also help any 18-year-old when used properly.
The decision to send your child off with a credit card is
largely a personal one, but if the new student treats it like a
debit card rather than a source of money for which only a minimum
payment has to be met each month, it can be a helpful tool. For
example, cash-back rewards and benefits, in addition to being a
great perk, can provide great security in the event of an
emergency, educate the student about personal finance, and serve
as a principal tool in building a credit score, which helps
people secure loans for big-ticket items such as cars and
Many companies offer fee-free cards designed for students,
and, of course, if your child pays off the balance every month,
no interest will accrue.
Parents should also note that the Credit Card Accountability
Responsibility and Disclosure Act of 2009 now requires anyone 21
or younger to either have a co-signer or a proof of income that
shows they can repay their debts.
With all that in mind, let's look at three potential card
options, all of which have no annual fee.
Discover Financial Services
: Discover it Card for Students
The Discover it Card was released at the beginning of this year
to much fanfare, with a press release touting it as
"game-changing." Since it offers a wealth of benefits and
currently holds a 4.8-star rating out of five from its
cardholders, it's easy to see why this is a great option for any
: 5% cash back on rolling categories every quarter and 1% cash
back on all other purchases.
: 0% for six months and then 12.99% to 21.99%.
Discover ranks No. 2 in J.D. Power and Associates' 2013 Credit
Card Satisfaction Study, narrowly missing the top spot held by
for the past seven years. There's also no foreign transaction
fee, which is helpful for any student who may spend a semester
Bank of America
: BankAmericard for Students
While Bank of America has had its ups and downs in recent years,
the BankAmericard has remained a helpful card for any student.
Its 3-2-1 cash-back feature is helpful for both road trips and
late-night runs to load up on ramen noodles at the grocery
: 3% on gas purchases, 2% on groceries, and 1% on everything
: 0% for 15 billing cycles and then 10.99% to 20.99%.
Bank of America also helps holders of these cards learn about
personal-finance basics such as budgeting and building credit
with its "Ultimate Money Skills" tips. And because it's a
card, it's accepted at more places than the Discover it Card for
: Journey Student Rewards
The final option comes from Capital One, which offers a card
intended for "[s]tudents with limited or average credit who want
to build credit and get rewarded for it." It's recommended by 91%
of its reviewers and sports a strong rating of 4.4 out of five
1% cash back on all purchases and a 25% bonus on the cash back
earned when the bill is paid on time.
19.8% variable APR.
This card lacks some of the benefits of the other two, but one
major benefit is that users have access to their monthly credit
scores and can freely monitor their credit -- a great tool to
help students prepare for life beyond college.
The bank set to benefit
So which option is the best for investors? Keep an eye on
Discover, which is making a big play in the student market
through both its credit card offering and its rapid expansion in
the student-loan industry. Its student-loan holdings have
increased by 50% over the past two and a half years.
What's more, Discover has ranked No. 1 in the Brand Keys
Customer Loyalty Engagement Index Report for the past 17 years.
So if it's able to begin building a loyal customer base at a
young age, it could benefit the company for years to come.
In addition to learning how to effectively manage a credit
card, learning the basics of long-term investing is crucial. In
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Patrick Morris owns shares of Bank of America and Discover
Financial Services. The Motley Fool recommends and owns shares of
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