Avoiding convenience fees and other charges is sometimes difficult.  Overdraft, transaction and convenience fees are euphemisms for ways to charge the consumer.  A convenience fee is a charge to pay by credit card and must be disclosed in advance.  It can be a percentage or flat amount.  It can apply to debit card transactions, too.  Recall The Money Skinny™ mission is to save you time and money.   Let’s review these types of expenses and five steps to calculate and evaluate fees.

Source of Convenience Fees

Want to pay your federal income taxes by credit card?  This IRS Pay Your Taxes by Debit or Credit Card details the costs.  Want to pay college tuition with a credit card?  Plan on a convenience fee.  Fees can be disguised with lots of different names.  Purchase a car from a dealership lately?  There’s origination fees, prep fees and whatever.  All siphon money from your wallet.  Ever been pursued for debt collection?  The Fair Debt Collection Practices Act published by the Consumer Financial Protection Bureau details what is lawfully permitted.

Other Fees

Sometimes fees are listed separately to make a product seem cheaper.  Take flight costs as an example.  An airline may sell the lowest base price per ticket.  But what about additional charges for carry-on bags?  Even for a seat?  Maybe you must join a fee-generating club to get the lowest airfare.  Evaluating a credit card or bank can be difficult because experience is needed.  You don’t know where the fee potholes are until you hit one.

Checking/Savings Accounts are “sticky”

Checking/savings accounts are considered “sticky” by the banking industry.  It’s a hassle to change accounts.  Checking/savings accounts are a gateway into the rest of the financial institution’s products.  Let the upsell begin!  Incentives hook more customers and make the fee situation less clear.  A free toaster for opening a checking account?  No thanks.  Buy your own toaster at Walmart for less than $8.  Better yet, buy a toaster oven for a superior horizontal toast.  Are you going to compare bank fees and services or keep accounts where they are?  The low friction option to do nothing can be more expensive.

5 Steps to Calculate and Evaluate Fees

1. Add all the fees on every 2016 statement (credit card, loans, bank/credit union statements, other debts, memberships, etc.).  Calculate interest paid separately.
2. Find the fee source.  Are they primarily from one institution?  Is a credit card hammering away with fees on cash withdrawals, for example?  Dial down on the fee details.
3. Calculate the 2015 fee total.  Are the fees trending up or down from 2015 to 2016?  Adding an extra year of fee history can add to your outrage.  Give you an extra push.
4. Develop a plan to reduce fees in 2017.  Address the root cause to stop the wallet hits.  Are ATM fees out of control?  Switch to a different bank or credit union with lower cost access to your money.  Are brokerage fees a big category?  There are plenty of low-cost brokerage options.
5. Reset transaction processes to avoid/reduce fees.  Consolidate ATM withdrawals.  Change automatic payments from credit cards to ACH.  The Money Skinny™ article Understanding the ACH Payment System explains the Automated Clearing House.

We All Fall Down

After an unblemished three decades, I bounced a check.  C’mon now.  It happens.  I neglected to update my check register when money was flying around.  Fortunately, the overdraft fee was $2 at my credit union.  Not $15 or $20 like a bank charges.  For a reminder on why to join a credit union, see The Money Skinny™ article The Wells Fargo Scandal – The Clawback.

Know Your Fee Total

Knowing how much you spend annually on fees reinforces the effort to reduce them.  Calculating a total fees paid adds to your outrage and spurs change. How much benefit you are getting?  Is it money well-spent or similar to driving down the highway blowing cash out the car window?

• Convenience fees, overdraft fees and transaction fees are all euphemisms for ways to charge the consumer.
• Checking/savings accounts are considered “sticky” by the banking industry.  Due to the hassle factor of changing financial institutions.
• Calculating a total fees paid adds to your outrage and spurs change.