Bank and credit card fees can add up to a substantial amount, but this realization often goes unnoticed because fees typically pile up small amount by small amount. Many of these fees can be avoided or waived with proper money management.
If you find yourself paying these fees on a regular basis, take a little time to calculate how much they are costing you on an annual basis. The result will dissuade you from continuing to pay fees that you could easily avoid.
As an example, let’s assume a banking customer, Jane, is in the following situation:
- Has a basic checking account and doesn’t waive account fees. Monthly account fee: $10
- Makes one late credit card payment per year. Late payment fee: $35
- Overdrafts checking account once per year. Overdraft fee: $35
- Withdraws from a non-bank ATM twice per year. Bank transaction fee: $4 total, ATM fee: $6 total
The total cost of annual banking and credit card fees (without interest charges) for Jane is $200.
Prior to opening a checking account and signing up for a credit card, if Jane was told up-front that there was a $200 annual fee for these financial products and services, she probably wouldn’t have opened an account at the bank. Instead, she could have had some fun with an extra $200 in her wallet, with which she could have done one of the following:
- Enjoy 22 months of a NetFlix subscription
- Buy 2,000 Facebook credits for her Farmville account
- Go skydiving
- Spend a day at the spa
But, obviously, the sensible move would be to save the money to secure a better financial future.
It’s fairly easy for Jane to avoid paying such banking and credit card fees.
- By signing up for direct deposits or by meeting minimum balance requirements, she could waive the monthly checking account fee.
- To avoid making late credit card payments, Jane should pay off her bill as soon as she gets it. Other options include automating her payments or signing up for alerts so she doesn’t miss deadlines.
- By opting out of overdraft protection, she would not be able to overdraw her account and therefore would not incur an overdraft fee. Or she could set up an alert when her balance is low.
- Since Jane seems to be an infrequent ATM user, she should research her bank’s ATM locations before heading out so she knows where exactly to go if she needs cash.
Are You Missing Out on Fun?
Personal finance gurus advise to track your expenses carefully to see how much you are really spending over a long period of time. Then you can determine in which areas you should cut back and save. So take a minute or two to add up the many banking and credit card fees and charges you’ve been paying over the course of a year.
Could that amount be put to better use such as paying down debt, building an emergency fund or having a little fun? How would you indulge yourself after you’ve removed these fees from your life?