Tuesday, October 27, 2009

Bank Fees You Don't Know You're Paying

By David K. Randall

Banks are cutting overdraft fees, but there are other hidden charges.

In the wake of the uproar over bank fees charged to debit card holders--and the looming threat of congressional action--banking giants Bank of America, JPMorgan Chase, and Wells Fargo have announced drastic changes to their overdraft policies.

What banking customers might be missing is that debit card overdraft fees are the tip of the iceberg. Banks nickel and dime their customers in numerous other ways that can easily cost the average person $100 or more per year. Adding insult, many of the fees are poorly disclosed and levied regardless of any action the customer does--or doesn't--take.

"There is a long list of fees that people pay that doesn't require any type of acknowledgment on the part of the consumer," said Greg McBride, a senior financial analyst at Bankrate.com. Here are five major areas of hidden bank revenues.

Balance Transfer Fees

Banks commonly mail out ads pitching low interest rates for customers willing to transfer credit card balances from another institution. What many don't advertise is that there is often a balance transfer fee of between 3% and 5% hidden in the fine print.

"If you're transferring a balance from a card with a rate of 15% to a card with a rate or 13%, but you're paying a 3% admission fee, you're not saving any money," McBride said. Moving a balance of $5,000 from one credit card to another with a slightly lower interest rate could result in a $150 charge being added to the balance that you owe and pay interest on.

If you're thinking about switching to a card with a lower interest rate, ask the bank what type of transfer fees it charges. These fees are separate from the annual interest rate that you pay.

Cash Advances

Consumers who take cash advances from their credit cards will also be hit with a transaction fee that they might not have been expecting. As with balance transfers, cash advances often come with a fee that ranges between 3% and 5%. That's not all.

"If cash advances weren't costly enough with interest rates in the high teens, there's no grace period, and the interest clock starts ticking right away," McBride said.

Foreign Currency Surcharges

Using a debit or credit card while traveling overseas is wonderfully convenient. Perhaps too convenient. Over the past few years, banks have commonly started charging a 3% fee for any purchases made in foreign currencies. That means if you go to Paris on vacation and buy presents in euros, the charges will show up on your statement in dollars--with the 3% fees built in.

If you plan to use a debit or credit card abroad, consider opening an account with Capital One or Charles Schwab, whose foreign currency exchange fees run as low as 1%. If you are going to be taking money out of an ATM in another country (another place where banks ring up additional charges), Wells Fargo and PNC offer some of the lowest fees.

Balance Requirements

Many banks offer to waive monthly service fees on checking or savings accounts if customers maintain a collective balance above a set minimum. Dip below it, and you could be hit with a charge of $8 or more every time your balance falls below the minimum.

"These requirements are really a lose-lose proposition," McBride says. "If you don't maintain the balance, you get socked with a fee. If you do maintain it, you have the opportunity costs of stranding money in a low-yielding account when you could be earning a more competitive return in an online savings account."

ATM Fees

Bank of America and other banks now charge customers from other banks $3 to withdraw money from its ATMs. But at least you have to agree to pay the fee at the terminal. What some customers may not realize that is that their own bank often levies a $2 fee every time they use a competitor's ATM as well. Adding up all the bank fees, it may cost $5 to take out $20 of your own money. That's a 25% commission, and the bank didn't have to do a thing.


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