Financial Aid Refund – What Do I Do With It?

It’s Student Loan Refund Open Season, and the line at Student Financial Services is about to get pretty long. For college freshman and anyone else who might not know what I’m talking about, Student Loan Refunds occur when you get more money from your financial aid than your school needs for your tuition and other billable expenses. And then they cut you a check for the difference.

So what’s to be done with this sudden, extra, seemingly-free money? “BUY BOOZE!” you say. And that’s a valid use of it (also not the best use of it), but I’m not necessarily talking about what you should spend it on. I’m talking about where you should put it.

You’re probably already making out the deposit slip to drop in your usual checking account at your brick-and-mortar bank. But is that really the best place for your money?

In a checking account, your money is basically just going to sit in the account until you’ve depleted it. Even in a regular savings account, it’s probably not going to earn more than .2% interest (a fifth of a percent). And sure, interest is good, but how much money is .2%, really?

What’s the average you get back on a refund check? I don’t know, but I’ve never gotten more than $350. Some people actually get enough from their checks to pay for their off-campus room and board for the semester, so it might be a lot higher, like $2,000. So let’s just use $500 for the example, because it’s nice and round.

So $500 in your savings account earning .2%. Now that $500 isn’t going to stay there for a solid year, but let’s pretend it did. After a year, you would have earned… *drum roll please…*

$1.00

Wow, that hardly seems worth it. In fact, considering you’ll deplete that $500, and won’t even earn a whole dollar, it doesn’t seem worth it at all to put it in the savings account instead of the checking.

But hold up – I’ve got an idea. In fact, it’s what I’ve done with this term’s refund already. Are you interested? I’ll be getting a 3.5% (not 3/10ths of a percent, a whole 3.5 percent) return on my refunds. And I got a $25 bonus.

So how much of a difference can 3.5% and a $25 bonus make? Well, to start with, there’s that $25 bonus. So we’re up to $525 in our example already. And $525 at 3.5% for the year would be… *drum roll again…*

$18.37 – putting the total up to $543.37. Without breaking a sweat.

Alright, alright, so you’re sold on the 3.5% with a $25 bonus idea – where can you get it? ING Direct’s Electric Orange Checking account. It works just like a regular checking account, with a few differences:

1. You get a 4% APY on money sitting in the checking account. You can also open a Orange Savings account with them, and link the accounts together. Money in the savings account earns 4.3%.
2. The account comes with a debit card, but no check book. If you need to send a check, they have an electric check system – or you can move the money to your brick-and-mortar checking account (so don’t cancel your old account!)
3. You get an Overdraft Line of Credit instead of “courtesy overdraft protections” – that thing where when your account drops below $0.00, instead of declining your purchase, your bank graciously lets the charge go through and then slaps you with a $35 fee? Yeah, instead of charging a flat, outrageous fee, ING charges a normal interest rate on the amount your account went below $0.00. If you manage to make a deposit in the next few days to bring the account back into the positive, you’d only be charged pennies – instead of $35.
4. You get a $25 bonus if you open the account with a referral link and your opening deposit is $250 or more.

So that refund check sitting in your checking account? The one that’s probably for $250 or more? Go open an account with it. Remember how I said you could move money from ING to your brick-and-mortar checking account? That link works both ways – you can move $250 from your regular checking to ING for the opening deposit.

So whether you’re saving this refund for next term’s textbooks, or you’re slowly draining it for expenses – it doesn’t really matter. Either way, you should be making some money off of it while it sits in your account.