Doesn’t it feel like every time you make a transaction — rent a car, use a credit card, invest in a mutual fund — some fee you didn’t expect and don’t understand claims more of your money? It’s hard not to feel cheated. What are those fees for, anyway? Are they justified? And most important, is there a way to avoid them?
Staffers at USA TODAY recently chose a few notable stinkers: six of the most truly irritating consumer fees. Happily, in many cases, these fees are as avoidable as they are nasty. Behold a few members of the hall of shame — and how you can stop them from burning you.
What they are: Failing to do research before you get to the car-rental counter could trigger insurance and other fees that exceed the cost of renting the car itself. Yet chances are, if you already have an auto insurance policy and are charging your rental on a credit card, you won’t need to buy any extras at the rental counter.
You will, though, have to deal with a bevy of taxes and airport fees. And some rental companies tack on extra costs based on where you live. In New York, for example, Dollar Rent A Car (DTG)
charges residents of Brooklyn, the Bronx and Queens an extra fee of up to $77 per day, on top of the going rate for the car rental, because these consumers "have demonstrated a significantly greater propensity for accidents vs. residents of other areas," says Chris Payne, a spokesman at Dollar Thrifty Automotive Group.
How to avoid them: Call your credit card issuer and review your auto, homeowners’ and health insurance policies before hitting the road. A majority of credit card issuers provide collision protection — which covers you if the car is damaged or stolen — if you charge the rental to your card. But this protection often pays out only after your auto insurance kicks in.
Meanwhile, supplemental liability coverage, which insures you against damages if you cause injuries or death to another person, is often included in umbrella home and auto policies.
You may also be able to save money on taxes and fees if you rent a car outside of airport locations. Finally, shop around, because rental costs vary widely from company to company.
Bank overdraft fees
What they are: Banks charge you these fees for spending more than you have in your account. At an average of $34 for each overdraft, banks are reaping a record amount — $17.5 billion — each year from these fees.
And banks are making it easier for you to overdraw your account. A few years ago, if you tried to use your debit card to make a purchase and lacked enough money in your account, they’d deny the transaction. Today, most banks approve the transaction — without warning you you’re about to overdraw — and then hit you with this fee. These charges can add up if you use your debit card for small transactions like coffee and magazines.
Debit card transactions have become the most common — and expensive — way that people overdraw their bank accounts, says Eric Halperin of the Center for Responsible Lending’s Washington office.
Banks are also processing checks and other debits from largest to smallest dollar amount, rather than in the order they came in, causing consumers to overdraw more often. A 2006 USA TODAY survey found that eight of the 10 largest banks paid checks from largest to smallest dollar amount.
How to avoid them: Keeping close track of your bank balance will prevent some of these fees. It won’t necessarily eliminate them. Even the most financially responsible consumers could be hit with overdraft charges. That’s because banks have sped up the processing of the checks you write but haven’t done the same with deposits made into your account, Halperin says.
One suggestion: Most banks offer an overdraft line of credit or a transfer from your savings if you don’t have enough money in your checking account to cover a transaction. These services cost a fraction of the price of banks’ automatic overdraft protection.
Mutual fund 12b-1 fees
What they are: A 12b-1 fee, named after the section of securities law that allows it, is an annual charge of up to 1% of your mutual fund’s assets. The fee covers the costs of advertising, marketing and selling fund shares. The 12b-1 fee is on top of whatever else your fund charges to pay salaries, buy and sell stock and print statements. Funds subtract their expenses, including 12b-1 fees, from the fund’s total assets.
A 12b-1 fee raises your fund’s annual costs, thereby shrinking your returns over time. "Over one or two years, a 12b-1 fee might not make much difference, but they can subtract quite a bit from returns in the long run," says Mark Salzinger, editor of The No-Load Mutual Fund Investor.
Consider two funds, each of which earns 7% a year before expenses. Fund A charges 1% a year; Fund B charges 1% plus a 0.5% 12b-1 fee, or a total of 1.5%. After 30 years, a $10,000 investment in Fund A will become $57,435. Fund B? $49,840 — a $7,595 difference.
How to avoid them:
Nearly 500 top-performing domestic mutual funds impose no 12b-1 fees and charge total annual expenses of less than 0.75%, according to Morningstar (MORN)
, which tracks the funds. If you buy funds through a broker and you’re a long-term investor, you’re usually better off choosing a fund that charges an upfront commission, rather than one that charges no commission but high ongoing fees.
What they are: If you’re traveling to Europe this fall, be prepared to pay more for everything. The feeble value of the U.S. dollar compared with other foreign currencies has driven up the cost of overseas travel. But many travelers are unaware of currency-conversion fees, which can add up to 4% to your credit card purchases.
Visa and MasterCard charge a standard 1% on all foreign purchases. But many banks also tack on additional currency-conversion fees of up to 2%, for a total fee of 3% on your purchases.
And you don’t even have to leave the country to get hit with currency-conversion fees, says Linda Sherry of Consumer Action. Ordering something online from a foreign company, she says, could trigger the fee.
How to avoid them:
A survey by IndexCreditCards.com found considerable variation in the currency-conversion fees that different bank cards charge. Washington Mutual/Providian, (WM)
for example, doesn’t add anything to the 1% charged by Visa and MasterCard, (MC)
the survey found, while Bank of America (BAC)
charges a total of 3%.
Using a Capital One card would save you even more. Capital One (COF)
doesn’t charge its own fee. And it absorbs the 1% fee charged by Visa and MasterCard. If you plan to spend a lot of money overseas, it’s worth applying for a Capital One card ahead of time to avoid currency-conversion fees, Sherry says. Bankrate.com (RATE)
lists fees for credit card currency conversion, at www.bankrate.com/currencyconversion
Credit card penalty fees
What they are: Late-payment and over-the-limit fees are among the most annoying fees that credit card companies impose. Pay late just one day, and you could be socked with a late-payment charge of up to $39.
Not long ago, your card’s grace period usually lasted for 30 days. But it’s now shrunk to as little as 20 days, says Curtis Arnold, of CardRatings.com. You might not even receive your bill until just before the end of the grace period.
You could face an over-the-limit fee of up to $39 if you spend just one penny past your credit card limit. The fee doesn’t just apply if your monthly balance is over the limit; you can be charged a fee for each purchase you make that exceeds your limit. Exceeding your credit limit can also cause your issuer — and your other creditors — to raise the interest rate on your credit card, Arnold says.
How to avoid them: If you’re hit with a late fee, call your bank and ask it to refund the fee. If you’ve been a good customer, it might give you a break. But there are more effective ways to avoid the fees in the future: If you pay by mail, be sure to send in the payment soon after you receive it. Even better, pay your bill online.
You can also arrange for your card issuer’s website to put your payment on autopilot. But if you do, don’t forget to check your bill each month to look for errors.
As for over-the-limit fees, you can ask a bank to deny any purchases or ATM withdrawals beyond your credit limit. Or go online and monitor your account, or ask if your bank will send you an e-mail alert. And before you make a major purchase or leave on an expensive vacation, ask if your bank will raise your credit limit.
Home closing-cost fees
What they are: Home buyers beware: Excessive fees associated with funding a mortgage and handling the transfer of a property’s title can sting badly. These fees, known as closing costs, typically add up to thousands of dollars.
By law, the buyer’s lender or mortgage broker must provide an estimate of the fees three days before the sale is supposed to be completed. The document, known as a "Good Faith Estimate," details the fees the buyer is expected to pay to cover the costs of services such as a pest inspection or a public notary.
How to avoid them: Especially in today’s weak real estate market, buyers command greater negotiating power with the lender and the seller to cover some of these fees.
You can negotiate the loan-origination fee, which is paid to the lender and can equal 1% of the loan. If you’re using a mortgage broker, you’ll pay a "yield spread premium" — typically 1% to 3% of the loan value.
The loan discount is upfront money you pay to "buy down," or lower your mortgage interest rate (not recommended for a buyer who plans to live in a house for a short period). It’s also negotiable. You can also dicker over the administrative fee, which is paid to the lender, and the attorneys’ fees.
You might save big, too, by shopping around for your own title insurance company, or by driving a hard bargain if you’re refinancing your home and using your current title insurer.
Via: USA Today