Getting Free From Fees

By Kelly Hodges
Fees are a part of life.  I’m sure we can all remember a time back in grade school when we forgot to return our library book on time and were dinged with a fine (5 cents per day comes to mind).  Sadly the grown-up world isn’t quite as forgiving as the children’s library.   Financial institutions make BILLIONS of dollars off of fees they charge consumers for making little mistakes.  The problem is that we make A LOT of little mistakes, which adds up to big money.  $25 here, $30 there can end up costing a careless consumer hundreds of dollars a year.  Late fees and overdraft fees are some of the biggest generators of revenue for financial institutions, so let’s take a closer look at what these are and how to avoid them.

1.  Late Fees.  These types of fees are pretty self-explanatory, you pay the bill after the due date and you get hit with a fine.  Late fees are attached to almost every bill you pay- credit card, mortgage, car loan, utilities, cable etc.  And while the Credit CARD Act of 2009 capped fees at $25 for first time offenders and $35 for repeat offenders, many non-credit card late fees will set you back more than that.  Just a handful of late fees throughout the year can really add up- all due to misplacing the bill or forgetting to stick it in the mailbox in time.  The good news is that there is a way to permanently eliminate late fees from your life- automatic bill pay.  Anyone with a checking account can take advantage of this great service that assures even the most absent minded get their bills paid on time each month.  Simply link the bill to your checking account, choose the date you’d like the withdrawal to occur, and then watch as your late fees are eliminated for good.  Now the only thing you have to worry about is having enough money in the account when the bill automatically gets paid (see #2).

2.  Overdraft Fees.  If you’ve ever been dinged with an overdraft fee, know you’re not alone.  Banks are expected to pull in a cool $16 billion this year in overdraft fees according to Moebs Services, a banking consultancy.   Banks enroll customers in “overdraft protection” that covers the costs of purchases if there’s not enough money in the account to back it.  As you can imagine this service is not free.  Each time the “protection” is needed a fee is charged.  For example, let’s say you buy a $4 latte with your debit card but only have $2 left in your checking account.  The overdraft protection will kick in allowing the transaction to take place even though you have insufficient funds.  You’ll then be charged an exorbitant overdraft fee that will transform your already overpriced latte into a $34 cup of joe- hope you enjoyed it!

The most obvious way to avoid overdraft fees is not to overdraft.  Keeping a close eye on what is going into and out of your account will help ensure that you’re not spending money you don’t have.  If you don’t think you can stay on top of monitoring your account, consider keeping a small chunk of change as a reserve in your checking account as your own form of overdraft protection (the fee free kind).  If that’s not possible, then you need to make sure you truly understand your bank’s policies and fees.  Your bank likely has several overdraft protection options, such as the option to link directly to a savings account to cover overdrafts.  You want to make sure you’re utilizing the one that will cost you the least amount of money should you ever need to use it.

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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of her employer or any other person or entity.

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