At a glance:
How small fees add up to big money
How to evaluate bank and credit union fees
How to evaluate credit card and debit card interest and fees
Other types of consumer fees
How to shop for better deals on fees
Summary of wasting money on fees
Practical ideas you can start with today
Conducting normal financial transactions is getting more expensive—if you aren't keeping an eye on the fees that banks are charging. From late fees to ATM fees to overdraft fees and other charges, you could be wasting hundreds of dollars on fees, money that you could use elsewhere in your budget.
Think about how good it would feel to add even $100 or $200 a year to your savings instead of giving it to your bank or credit card company.
How small fees add up to big money
In the hustle and bustle of daily living, it is all too easy to let consumer and financial fees slip by. If you don't pay attention, at the end of the year, you could have spent hundreds of dollars on consumer fees that you could have avoided and profitably used elsewhere in your budget.
These fees include bank and credit union fees, payday or emergency loan fees, payroll card fees, rent-to-own fees, car buying and leasing fees, and other charges that tend to fly under the radar of many consumers.
How common fees add up, sometimes without being noticed
It's amazing how quickly some of these fees, which don't seem to be so large in and of themselves, can add up. For instance, if you are late paying your credit card, have an overdraft on your checking account, and use an out-of-network ATM three times, you could easily incur more than $60 in one month in fees.
And because those fees are automatically deducted from your bank account or added to your credit card bill, they can fly under your radar, and result in other fees. For example, if you bounce a check or a debit payment, that fee is deducted from your bank account and could result in a second bounced payment.
Just think about how much those types of fees, and other fees, can cost you over the course of a year. If you had two late credit card payments and three bounced checks, took out a payday loan, and used an out-of-network ATM once a month, your yearly fee payments could add up to $290 in the course of that year.
Fees are usually hidden
These fees are pretty sneaky because in many cases, you aren't aware that they are being charged. If you are notified, you might be in a hurry, or it is something that has already happened that you can't change.
For example, if you are out of town and need cash in a hurry, you might have to go to an out-of-network ATM for cash. The ATM will tell you there is a fee, but if you have to have the cash to pay for something, there isn't much you can do about it.
Or, if you bounce a debit payment or check, those funds will automatically be deducted from your checking account. At most banks or credit unions, you will have the option to sign up for overdraft protection and will be told what the bounced payment fee will be when you open an account, but it's easy to lose track of those fees and bounce payments if you aren't balancing your checkbook regularly or if you don't follow a budget.
Becoming more aware of fees
One of the best ways to become aware of fees is to pay attention to the paperwork that you get from your bank, credit union, credit card, the provider of your payroll card if you get paid with one of those, other lenders, and other companies that you do business with.
For example, when you open a bank account, you receive a lot of paperwork, and that information usually contains a list of fees. If you don't have a list of those fees, call the bank and ask a customer service representative about the fees that that bank charges.
You can do the same thing with other companies that you do business with. Also, whenever you open a new account or take out a new loan, make sure to ask about any fees involved. Then, think about whether the fee is worth the new card, loan, or other product.
How to evaluate credit card and debit card interest and fees
Fees are often the big bone of contention among bank and credit union customers that causes them to angrily part ways. Some fees seem unreasonably high or just plain ridiculous to many people.
They can total in the hundreds of dollars every year, too. But they have purposes—to pay for the services being offered or to make up for lost earnings elsewhere.
Generally, credit unions have the advantage over banks when it comes to fees, because they are nonprofit and therefore can plow their earnings back into their business, thereby reducing fees and offering a higher dividend rate.
Let's look at the most common fees charged and how you can work with them:
Maintenance fees. These are periodic fees (usually monthly) that compensate the institution for the services it provides. Not all accounts charge them; some of those that do charge them may waive the fees if, for example, you use direct deposit for your paychecks. Fees are generally understandable, but compare them to other banks or credit unions to make sure they are competitive.
Low-balance penalty fees. This is a fee levied on you if your balance falls below a certain amount. It is therefore an incentive to keep your balance high, which is a benefit to the institution. How it is calculated may be important to you: is it based on your average daily balance, the balance on a certain day of the month, or the lowest balance during the month? Depending on the method used, you may be able to dip below the required amount at various times and still avoid the fee.
ATM fees. There are several possible charges related to automated teller machines. You may be charged a fee to use your institution's ATM; there's a strong chance you'll be charged to use the ATMs belonging to other institutions. On top of that, if you lose your ATM card, you may be charged for a replacement card. You can get around ATM fees by taking out larger withdrawals when you visit your branch, and also by taking out extra from a debit card when you make purchases with it.
Bounced check fees. If you write a check and don't have enough funds in your checking account to cover it, you will have an overdraft and will likely be charged an insufficient funds fee (bounced check fee, in other words). You can avoid these by being careful with your checking and/or by getting overdraft protection.
Returned check fees. If someone writes you a bad check that you deposit, you may be charged.
Overdraft protection fees. Overdraft protection lets you write checks when you don't have enough funds in your account to cover them. There may be a fee for this, which will be less than the bounced check fee, and there may also be an interest charge, because overdraft protection is essentially a loan given to you until your balance gets out of the negative.
Check printing fees. If you want your bank or credit union to print checks for you, there will be a fee. This fee may be waived if you are new, if you have a high minimum balance on your account, or if you belong to certain preferred groups such as senior citizens. Alternatively, check printing fees are often much less at professional check printers.
Per-check charges. If your institution limits you to a certain number of checks per month, you will be charged fees if you write more than the limit.
Cancelled check return fees. If you want cancelled checks but they are not normally provided, you can often get them for a fee.
Closed account. If you close an account early that you agreed to keep open for a certain length of time, there may be a fee for closing it.
Ask yourself some questions about these fees
If you are not careful or strategic with your account, you could rack up a lot of expenses. Take a running total of your expenses for the past month and multiply them by 12 to see how much you are paying in expenses.
If the total is in the hundreds of dollars, do a mental cost-benefit analysis and determine for yourself whether the fees are worth what you are getting. Has your bank or credit union met your expectations throughout the year? Is it offering what you really want and need? Do you see other uses for that fee money, or is it justified for you?
If you haven't yet opened an account for yourself, be aware of all these fees and be aware that they can take a large bite out of your account balance if you are not careful.
Consider these questions as you look at the fees you are paying. If you don't like them, you might consider switching to a different institution or changing your behaviors to incur fewer fees.
Evaluating credit card and debit card interest and fees
Credit card interest and fees are not created equal. Some will cost you a lot more than others. Here is what to look for:
Credit card APR
The interest rate you will pay on your card is called the annual percentage rate, or APR. APRs differ among cards, sometimes greatly. If you don't usually incur fees or care much about the bells and whistles of different cards, then the APR may be the major selling point for you. Some APRs are fixed while others are variable, meaning that they change periodically.
There are three APRs you should be aware of. There are promotional APRs (also called introductory or teaser APRs) for balance transfers and for some new cards. These APRs last a certain amount of time before switching to the regular APR, which is the normal rate charged on your card. There is also a default APR, which will kick in if you violate the terms of your credit card agreement by, say, making a late payment.
If your credit is good, you should qualify for lower rates. If you belong to a credit union, you may get an even lower rate on its card. Don't be taken in by cards with low promotional APRs: the regular APRs that they will switch to might be higher than you want. That's why it's important to compare the three APR types among several cards.
Cash advance and balance transfer rates
The APRs on cash advances and balance transfers differ from the regular APR; they are often higher. Compare these rates among cards as well, especially if you plan to use these features a lot.
How the finance charge is calculated
Interest is not calculated the same way for all credit cards. A card will use any of the following methods:
Average daily balance. Each day's balance in the billing cycle, averaged out.
Beginning balance. The balance at the beginning of the billing cycle.
Adjusted balance. The beginning balance minus any payments made during the month.
Ending balance. The balance at the end of the billing cycle.
Based on your spending and payment behavior, which of these would result in the lowest interest for you? That's what you must consider.
Fees and penalties
Know every fee and how much it is and what causes it to apply. Fees aren't always the same for every card. And some cards with otherwise attractive features will compensate for them by charging high fees and penalties.
Fees are charged for going over your credit limit, paying late, transferring balances, making cash advances, paying your bill by phone, putting a stop payment on your card, and other occurrences. Additional fees may arise in the future, such as swipe fees that compensate merchants for fees they must pay to credit card companies.
When comparing cards, you can find some good deals. For example, if you plan to do balance transfers, there are cards that have no transaction fees and/or zero percent interest for a certain number of months, such as 12. Again, the better your credit is, the more chance you will qualify for good deals like these.
Some cards charge annual fees. In return for these fees, they may offer better features than non-fee cards. For you, would the benefits of using an annual-fee card outweigh the annual fee?
Debit card fees
Debit cards are not always free to use. There are overdraft fees if you withdraw more money than you have in your account. If you use your card at an ATM not run by your financial institution, you may be charged a fee. There may be fees for simply having the card, fees for not using the card, fees for ATM use at your own financial institution, activation fees, and some customer service fees.
Some institutions even charge you a fee if you enter a PIN (personal identification number). As debit card use grows around the world, there is the potential for more fees to be put into place. Your financial institution must, by law, disclose all fees it charges on debit cards.
Payroll cards, which are an alternative to traditional checks or direct deposit, may also charge fees. Learn every fee involved so you can keep as much of your earned wages as possible.
Watch out for other types of consumer fees
Besides bank, credit card and debit card fees, there are a number of other types of consumer fees that you could run into. These include fees attached to the sale or lease of a car, interest and fees when you rent to own electronics and furniture and fees involved in payday or short-term lending.
Just like other fees, these fees have the potential to be expensive and can be wasteful, so by being aware of them you can do your best to avoid them or negotiate around them so they aren't as expensive as they could be.
Car purchase and lease fees
There are many fees that you may be charged when you buy a car. Some may be legitimate fees that a car dealer is charged by the manufacturer, while others may be added on where the dealer hopes to make additional profit. These fees include:
Vehicle or dealer preparation fees: charges to get the car ready to deliver, including washing the car and removing bumper protectors and other items.
Documentation fee: a fee that covers the cost to process all the paperwork involved in registering the car with the state and getting a license plate. Check this fee to see how much the state charges and make sure the dealer isn't adding anything on.
Floor plan fee: a fee the dealer is charged for keeping the car in their inventory.
Administrative fees: fees that may be charged to the dealer by the manufacturer or added on.
Everything but the documentation fees are optional, so feel free to negotiate them or even to refuse to pay them as part of the negotiation process.
Fees involved in leasing a car include:
Security deposit: If you don't have good credit, the bank or leasing company may require a security deposit that you will get back at the end of the lease after any mileage or damage fees are taken out of it.
Bank fee: This is an administrative fee charged by the bank or leasing company that is designed to cover the costs involved in getting the lease approved. This can range from $495 to $1,000. Sometimes dealers add to this fee, so it could be negotiated.
Disposition fee: A fee due at the end of the lease that covers the leasing company's expenses involved in selling the car once you turn it in. Not all leasing companies charge this fee.
Documentation, title and licensing fees: These are similar to the documentation fees charged when you buy a car; they cover the costs to license and register your leased car.
Rent-to-own and payday loan fees
Rent-to-own stores are popular with consumers who have no credit or low credit scores or who don't have the savings or income to buy items like furniture or electronics outright. In a rent-to-own situation, you sign a contract and make regular payments on an item. You can keep the item for a short period of time and return it or make payments over a long period of time until you own the item.
In the vast majority of cases, you will pay far more for any item in a rent-to-own scenario than you would by saving up and buying the item outright or even putting it on your credit card. And if you get behind on a rent-to-own contract, the company can repossess your item and you will have to pay a fee to have the contract reinstated.
A Consumer Reports report noted that if you bought a laptop through a rent-to-own store and made regular payments over four years, the interest rate on that payment would be 311%, and you would pay $1,260 more for the laptop than if you had bought it outright.
Payday loans are a type of predatory lending. Predatory lending describes loans with very high interest or fees that cost much more than the benefit received from the actual loan.
Loans from payday lenders are designed to cover emergencies, but many consumers who are low-income use them to meet their regular expenses. Fees can be as high as $15 per $100 borrowed, which adds up to a 391% annual percentage interest rate. If you can't pay the original payday loan back and have to renew it, the costs continue to add up.
Payroll Card Fees
If you receive your wages via a "payroll card"—a debit card that is loaded up with your wages—instead of a traditional check or direct deposit, you should be aware that there may be fees involved for accessing your money. There may be fees to get your balance, for calling customer service, and/or for actually using the card.
How to shop for better deals on fees
Because bank, credit card, and other consumer fees tend to fly under the radar, it is not always easy to avoid them. There is the tried-and-true method of picking up the phone and calling around to ask questions about bank, credit union and other fees.
You can also check the credit disclosures when you apply for a credit card online to see what kinds of fees you might be charged if you pay late, miss a payment, or do something like exceed your card limit. When you are buying a car, do some research in advance and ask the dealer to see the manufacturer's invoice, so you can know which fees are legitimate and which ones are added to give the dealer additional profit.
In terms of rent-to-own and payday loan fees, the best way to avoid those fees is to avoid those products altogether. It is much more cost effective to save up the money to buy a big-screen TV or a new living room set or even put them on a credit card rather than go to a rent-to-own store. There are many alternatives to payday loans as well.
Online fee tools
However, there are some useful Websites that can help you if you are looking to avoid fees:
Nerd Wallet's Checking Account Tool: This site will screen banks for free accounts, out of network ATM fees and low overdraft fees.
Bankrate.com's Checking Account Tool: This site allows you to screen for Internet-only banks or local banks and will return results that show the minimum balance to avoid fees, any monthly fees, bounced check fees, and ATM fees.
FindABetterBank: This site has a screening tool where you can specify the features you are looking for in a bank account and the types of banking activities you usually perform so that it can give you an estimated annual fee total.
Creditcards.com: This site lets you screen for a variety of credit card offers. The initial results will summarize annual fees and interest rates and may disclose information on other fees, but you may have to look at the credit card disclosure when you apply or call the toll-free number to get all the fees.
Kelley Blue Book: This site provides manufacturer prices for a wide variety of new and used car and truck models. When you have zeroed in on what kind of car you want to buy, get the prices so you can have better information to negotiate with the car dealer, which can help you avoid fees.
Other ways to avoid fees
One of the best ways to avoid fees and the unpleasant surprise you get when you realize you've already been charged a fee that you could have avoided is with budgeting, getting better control of your bill-paying, and paying yourself first. Many bank, credit union, and credit card fees happen due to late payments or overdrawn checking accounts or last-minute decisions like going to an out-of-network ATM.
In the case of car and car lease fees, consulting a Website such as Kelley Blue Book or Consumer Reports (www.consumerreports.org) can provide information about the actual manufacturer's price, so you can be in a better position to negotiate.
Consumer Reports typically has the most detailed information, though you have to pay a fee to subscribe. With payday loans and rent-to-own stores, the best way to deal with those fees is to avoid such loans and deals entirely.
When you have control over your bill-paying by balancing your checkbook, scheduling your bills to be paid regularly online through your bank or an online bill-pay service, and having your paycheck deposited through direct deposit, it is much less likely that you will pay bills late, resulting in late or bounced payment fees.
If there are fees that you know you will have to pay and can't avoid, saving up for those fees and depositing that money in a special account will ensure that the money is available for that purpose when you need it.
Summary of wasting money on fees
In this tutorial, we've discussed some ideas on ways that you can be more aware of consumer fees and how to avoid paying them. By gathering information about fees connected with bank or credit union accounts; credit cards; buying a car; taking out a payday loan; and renting furniture, appliances or electronics; you put yourself in a better position to avoid paying those fees.
That will help you save money and potentially meet your savings goals more quickly.
Now that you realize all the different ways that you can save money on consumer fees, we'd like to encourage you to take some concrete steps in your own financial universe to become more aware of the fees you might be paying and avoid paying them.
Practical ideas you can start with today
Call your bank or credit union and ask about overdraft and out-of-network ATM fees. If you've been paying those fees, make some changes in your habits to avoid them.
If you have a credit card with an annual fee, consider going to www.creditcards.com and finding a card with no fee and applying for it. Once you get the new card, pay off your old card and cancel it.
This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.
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