Conspiracy theories and gripes with The Establishment aside, it is possible that your bank or financial institution is raking in hundreds of dollars in fees from your hard eared cash every year, simply because you are unaware of how your bank fees are allocated. You’re being ripped off by not knowing how and when your transactions attract fees, and you’re being ripped off by not understanding compounding interest and why your interest free days don’t apply anymore.
Instead of being ripped off, educate yourself about common bank fees, how they’re charged and how they can be avoided. Then take a look at the fine print on your financial products to see exactly how much you’re being charged, and use these tips to help you compare banks and products to find the best ones for you and your needs.
1 – Annual or monthly fees
Many banks and financial institutions will charge you just for the privilege of having an account with them, before you have even used any of the funds in the account. This can be in the form of an annual or monthly fee and it is important to note that even if you don’t hold a credit card account for a full year for example, you are still charged a full annual fee, as it is taken out when your card is activated.
You can also be easily fooled by account keeping fees because many banks run introductory offers, especially on their credit card annual fees, where you receive the first year fee free. As a result you tend not to notice what the annual fee reverts to and can then be hit with hundreds of dollars the following year. In the case of transaction accounts, a fee may be applied if your balance drops below a certain amount, otherwise you can enjoy a fee free account.
2 – Withdrawal and transaction fees
You can then be charged for how and where you use and access your money and transaction accounts often have a certain number of free transactions included each month, after which you pay a transaction fee each time you access your account at an ATM, through EFTPOS or a branch. Therefore, make sure you know how many transactions your account includes, and how many you have used at any one time. You can then ration your transactions if you need to, knowing that on the 15th of the month you’ve already used eight of your 10 free transactions. Instead you can start taking out cash when you make an EFTPOS purchase as this counts as just one transaction.
You should also plan your spending to avoid ATM fees as many banks will charge you a fee to withdraw money from a rival bank’s ATM.
3 – Interest charges
One of the nastiest types of bank account fees, credit card interest is also one of the least understood, allowing banks to rip you off and you don’t even know where your money is going.
There are a number of ways you can be charged interest on your credit card, and interest charges accumulate so quickly because you are being charged compounding interest. This means that you are charged interest on existing interest charges, for example, interest for a statement period is calculated on your balance, plus your fees, plus any interest not repaid in the previous month. While compounding interest is good news for growing your savings, it is bad news when you are trying to stem the flow of credit card costs.
It is also important to understand that your interest free days only apply if your balance has been repaid in full the previous month, otherwise you start being charged interest from the time of the purchase. This is also true for balance transfer credit cards because your transferred balance is still outstanding and interest free days do not apply to new purchases on the card.
4 – Overdraft fees
Overdraft fees are charged when your account becomes overdrawn due to lack of funds. Banks will process a transaction or honour a direct debit payment even if there are insufficient funds in your account, to spare you the embarrassment, and of course to collect on overdraft fees. Banks will also typically process larger cheques or transactions before smaller ones to increase the opportunity to charge overdraft fees.
There are several ways you can protect yourself from overdraft fees:
- Monitor your balance and automatic withdrawals. If possible, have all of your direct debit payments made from your account on the same day, as close as possible to the day your wages are credited to your account. This reduces the likelihood that you will forget about a payment and over spend.
- Track your spending yourself. Checking your balance in your statements and online is not always immediate enough to give you an accurate account balance. Sometimes a transaction from the morning may not show up until the following day, leaving you to overdraw your account that afternoon without realising.
- Leave room in your budget spending. To make sure you have more than enough funds in your account at all times, don’t cut your spending so fine to the edges of what you can afford within your budget. Instead, budget to have funds spare to cover all withdrawals.
- Link your account to a safety net. Some banks will allow you to link your transaction account to a savings account, so that if your transaction account does not have enough funds to cover a withdrawal, the funds are taken from your savings account, rather than overdrawing your account.
- Ask for overdraft protection to be removed. If you want to avoid overdraft fees all together, ask your bank to remove the protection of honouring payments when you have insufficient funds. If you can monitor your spending and your budget, and wear the embarrassment if you miscalculate, you can save on overdraft fees.
5 – Late payment fees
Late payment fees can be charged when you miss the payment on your credit card, home loan or personal loan and defaulting on a repayment can jeopardise a promotional interest rate, lead to significant fees which are added to your balance and then attract interest, and can harm your credit rating and credit history.
Instead, make sure you know your accounts and your repayment amounts so that you can pay your bills first, before spending on luxuries. If you don’t think you have the discipline, set up a direct debit from your account on the day your wages come in to make the payments automatically.
How To Compare Bank Accounts and Fees
If you have looked at your bank accounts and credit cards and found high transaction fees, monthly fees or unfair interest charges, then start a comparison of the top financial products to find ones which suit your needs. To choose the best bank accounts:
- Compare products for the way you use your money. If you know you regularly attract overdraft fees, look for an account which allows you to opt out of honouring payments and you will quickly learn to be more organised. At the same time if you know you like to make a lot of ATM transactions look for an account with free ATM transactions.
- Compare on a level playing field. When you are comparing financial products, look past the promotional offers and the flashy features and read the fine print which applies to the account. When you understand the fees for each transaction and how they are charged you can more easily avoid being ripped off.
Alban is a personal finance writer at Home Loan Finder, which offers home loan comparison services.