Thursday, October 22, 2009

Savings Success 101: Avoiding Bank Fees

Fees There has been a lot in the news lately about the exuberant  fees that many of the large financial institutions are charging. Overdraft fees, statement fees, stop payment fees etc. etc.

Here is a little lesson in commercial bank management: Traditionally banks made money on the “spread.” That is, the difference between what they pay in interest on deposits and what they earn on interest from loans. Pretty straight forward right? Well not so much, investors began to demand higher and higher returns on their investment, so banks had to find another large revenue stream. Enter the ridiculous fee.

It probably started innocent enough, first a fee here to deter account abuse, then a fee there to cover costs associated with a specific product. But then they realized that there was some money to be made, after all consumers never look at their bank statement, right?  Boom – the account maintenance fee is born.

You know how the fee story progresses, after all you are the one paying these fees. But let me share the most ridiculous of all ridiculous with you. In a recent USA Today article Sandra Block writes about the latest bank fee. A $29 to $99 fee will be charged to some credit card holders who have never carried a balance and have never paid a late fee. WHAT!!!

Yes, you read that correctly. It will now cost you, in real dollars, to be a responsible borrower. 

Listen, I have never been one of those advisors who wants clients to swear off credit cards. I have been of the notion that there is a time and place for credit cards, given a certain level of responsibility. But there comes a point where enough is enough…

Here comes my shameless plug for Gallup FCU and other credit unions all across the country. The credit union mission is “Not for profit, not for charity.” A responsibly run credit union should be abiding by this mission in all they do, including fees. Gallup FCU publicly posts all of our fees on our web site. Our goal is to have as few fees as possible while maintaining an appropriate level of accountability with the member. I am not saying that we don’t have any fees, we do. But the fees we carry are typically fees that are designed to deter members from abusing their account or for new products that are cost prohibitive without subsidy from a fee. We want to be as open about or fees as possible, if you ever wonder why we charge a fee for specific things or how we price those fees, please do not hesitate to ask. Guide Rock Mountain

The bottom line is that fees eat away at the progress you are making on your savings pilgrimage. You have to be aware what you are paying for in each of your accounts. This doesn’t only apply to your bank account, you have to evaluate all of the places you have money. What does you credit card charge, how about your 401(k), those mutual funds you own, the life insurance policy you have or the advisor you use? If you aren’t sure, go find out! 

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