Why do so many banks offer cards with no annual fee? Because they know that you’ll look at that cost before signing up. By dropping it to zero, they make the card appear “free.” In fact, they’ll be charging you even higher fees, in ways that you might not notice until too late. A sampling:
■ Late fees. Pay just one day late, and you might be charged anywhere from $15 to $39 (with $49 on the horizon). Your interest rate might go up too (see above). At many banks, cardholders with small balances pay more than those with large balances. (Some banks now offer to send payments to your creditors overnight, for a fee that’s less than the late charge would be.)
■ Over-limit fees. Every card carries a credit limit. That’s the total amount of money you’re allowed to charge. In the past, the banks cheerfully let you exceed your limit and hit you with a $29 to $39 fee each time. They also used over-limit mistakes as an excuse to charge you a penalty interest rate. You had to pay. On new accounts, however, you have a choice. You can’t be charged over-limit fees unless you agree to accept them. Some banks are dropping the fees. Others might urge you to accept, so they can keep mining you for profits. The fee will be sold as an over-limit “protection” plan. My advice: Just say no. You’ll save yourself fees and the risk of incurring a high penalty interest rate. If you try to buy some¬thing that exceeds your limit, the transaction probably won’t go through, but so what? You should always carry at least one credit card with lots of charging power. If the first card won’t work, use the second one. Having credit limits is a wonderful discipline. They motivate you to keep a closer eye on what you spend.
■ Balance transfer fees. When you transfer a balance, you’re typically charged 3 percent of the amount (with many banks at 5 percent). That’s $300 to $500 on a $10,000 debt. A few banks charge no fees. Some will waive the fee if you call and ask—so always call. Some cap the fee at $30, $50, or $75. Never accept a zero-rate balance transfer offer without checking on the fees.
■ Fees for cash advances. You might pay 3 to 5 percent with a $10 minimum. That’s on top of the higher interest rate banks charge for a cash advance.
■ Fees for paying with a check that bounces. These run up to $34.
■ Fees for inquiring about your credit limit. That’s a particularly neat trick. You’re charged if you exceed the limit and charged if you ask how close to the limit you’ve come. You might even be charged for paying off your card in full.
■ Foreign transaction fees. You might be charged an extra 1 to 3 percent for shopping abroad. The fee could even apply to foreign items bought online.
■ Slamming fees. Your bank may have added something extra to your account that you didn’t agree to buy, such as credit life insurance, rental car collision insurance, and other extras. Watch for these on your monthly bill and cancel them fast if you don’t want them.“Convenience” Checks and Cash Advances
They come in the mail from time to time. Your bank sends convenience checks, with the suggestion that you use them for some pressing bill (or pressing want). Need a vacation? Want a new computer? Just write a check. What’s not to like? Here’s what:
■ The interest rate. Convenience checks are cash advances. Banks charge higher rates for cash than they do on credit card balances. You could easily pay up to 28 percent.
■ The fee. There’s usually an up-front fee, amounting to as much as 5 percent of the cash advance. That’s $50 on a $1,000 advance, plus the higher interest rate. Counting rates and fees, the effective interest rate on short-term loans can top 100 percent.
From MAKING THE MOST OF YOUR MONEY NOW by Jane Bryant Quinn. Copyright © 1991, 1997, 2009 by Berrybrook Publishing, Inc. Reprinted by permission of Simon & Schuster, Inc.