Fees hidden and open, reasonable and ridiculous, can take a serious chomp at your bottom line. Here are ways to keep the worst of them at bay.
Read the fine print of your phone, bank and fuel-card statements, your leases and settlements, even your hotel and wireless bills, and you might be reminded of one of the big musical numbers in “West Side Story”:
Ev’rything free in America
For a small fee in America!
No single $3, $10 or $25 fee will put you out of business, but like repeated bites from an angry dog, the cumulative effect of too many out-of-control fees can do serious damage. Many fees are unavoidable, while many optional fees are worthwhile because they pay for services that profit you in the long run. But too many unnecessary or outrageous fees hidden in the fine print of contracts and bills built up month after month cost you plenty.
To keep your business-related fees on a leash, carefully record each instance from your bills, contracts and ATM receipts, no matter how annoying the chore may be to contemplate. They’re tax-deductible, they affect your cost per mile, and realizing what you’re actually shelling out in avoidable expenses will inspire you to cut back on them.
Here are some of the most egregious, draining or pointless fees, and how to minimize or avoid them.
“Credit cards can be a useful financial tool as long as consumers understand the terms under which they are bound when using the card,” David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, told U.S. senators during 2007 hearings.
The catch is that many card holders don’t understand those terms, or haven’t comparison-shopped enough to realize what a raw deal they’re getting. Credit cards can be found that charge no late fees, no annual fees and no balance-transfer fees. Introductory rates can range from 9 percent to 17 percent.
“Some issuers charge cardholders a $5 to $15 fee to make a single bill payment by telephone,” says Consumer Action. “Others charge a $2 to $13 fee for obtaining a single copy of a billing statement or other record.”
Besides shopping around for a good deal, a few common-sense business practices will keep all credit card fees to a minimum:
Pay cash. This avoids interest, overdraft fees and late-payment fees and has the added benefit of reining in impulse buys, says CPA Sue Stevens, columnist for Morningstar.com.
Don’t put more charges on your card than you can afford to pay off at the end of the month.
Whenever your card sends you a new set of terms, read them and find out what’s new. Your good deal can go bad overnight.
ANNUAL FEE. This once-common fee soon will be classified as outrageous simply because most card holders aren’t paying it. Of major credit cards reviewed by the U.S. General Accounting Office in 2005, almost 75 percent charged no annual fee. Among those that did, the annual fee varied widely, from $30 to $90.
“Reward cards” that offer cash or points as an incentive for whipping out the plastic are the most likely to have an annual fee. They also tend to charge higher interest than traditional cards, so if you don’t pay in full each month, financial experts say, you’re probably better off without the rewards.
Unless you’ve crunched the numbers and made sure your rewards card is a good deal, just say no to cards with annual fees.
OVER-LIMIT FEE. The fee for putting more charges on your card than your credit limit allows never made much sense – shouldn’t the card issuer just refuse the charge instead? – but this one also soon may disappear, the GAO reports. Between 2003 and 2005, the percentage of major cards charging over-limit fees slipped from 85 percent to 73 percent. The GAO says this is because card companies want to encourage increased spending “as a way to generate revenue.” Over-limit fees, after all, only discourage it.
Why enrich the card companies? Stick well below your spending limit. Keep in mind that even using as much as 50 percent of your limit can look bad on your credit report.
LATE FEE. This fee definitely is not going away. In 1995, the GAO reported, the average penalty fee for a late credit-card payment was $12.83. Ten years later, it was $33.64. Today about 10 percent of card-issue revenue, the GAO estimates, comes from penalty fees, most of it late fees.
Adding insult to injury are credit-card companies’ strict rules for what constitutes on-time payment. Even the U.S. Internal Revenue Service accepts a postmark as proof, Consumer Action points out, but that’s not good enough for credit-card companies.
Incurring several late fees over a year means you’re paying way more than the advertised interest rate. The Association of Independent Consumer Credit Counseling Agencies offers this example. Suppose at the end of the month you have a $1,000 balance on a card with 15 percent annual interest, which is 1.25 percent monthly interest. Your finance charge should be $12.50. But suppose you sent in your payment late, incurring a $29 late fee. Now you’ll owe $41.50, the equivalent of 4.15 percent interest for the month, or 49.8 percent for the year.
Even worse, the card company can greatly increase your interest rate – to 29 percent or more – for late payments. As a result, the GAO reports, 11 percent of U.S. card holders were paying interest rates above 25 percent in 2005, more than double the percentage in 2003.
And the “universal default” clause in most credit-card contracts means your other card issuers can hike your rates likewise, once your late payment to Company A shows up on your credit report – even though you’ve always paid Companies B and C on time.
Pay on time. Keep track of due dates. Put checks in the mail at least seven days ahead. Make arrangements for online or automatic payment whenever possible.
Other card fees
DEBIT CARDS are similar to checks, not credit cards, in that the money for a purchase comes out of a live account, usually checking. Some banks, however, do charge anywhere from 25 cents to $1 for each debit-card transaction.
PREPAID CARDS and other stored-value cards are less likely than debit cards to charge transaction fees, but they can charge activation fees of $4.95 to $19.95 and monthly fees of 99 cents to $3.50, plus inactivity fees and even fees for cashing out the card.
GIFT CARDS issued by banks, featuring the logos of major credit cards, can cost $2 to $10 each with a $5 monthly charge that quickly erodes any value left on the card, plus a $25 replacement fee if it’s lost.
A much-forwarded online humor piece, written by Australian newspaper columnist Peter Wear, is a letter from a fictional customer informing his bank that from now on, he’s forced to charge the bank $20 per page to read any unsolicited advertising included in his statement, and $5 per minute to answer any phone calls from bank employees.
The unfunny truth behind Wear’s joke is that banks increasingly rely on customer fees for their revenue. In 2005, the 8,833 banks insured by the Federal Deposit Insurance Corp. reported non-interest income – much of it fees – of almost $222 billion, almost 10 percent more than the year before.
Many banks now charge $3 a month to provide copies of customers’ canceled checks.
Some banks charge $2 a month for paper statements, or $6 a month to access your statement through a software program such as Quicken, or $2 per call if you call the bank’s service center more than twice in a statement period. Some banks even charge you for walking in and speaking to a teller.
In general, when you’re choosing among banks, or among plans offered by a single bank, go with low-fee or no-fee options. For example, some “free checking” accounts charge you $25 a month if your balance drops below a required minimum. Look for free checking with no minimum balance.
Fortunately, two common bank fees also are among the easiest to avoid.
ATM FEE. The fee for using the automated teller machines of a bank or credit union not your own can be $3.50 or more. No one who needs cash on the road pauses more than a second before hitting “OK” to accept that fee, but over-reliance on out-of-network ATMs can cost you plenty over time.
Use out-of-network ATMs infrequently, getting enough cash each time to justify the expense.
Consider switching your business to a bank with an extensive ATM network that offers free transactions over the widest area. Some banks even reimburse customers for ATM fees they were charged by other banks, but can require you to save ATM receipts before doing so.
Assuming your checking account can take the hit, get extra cash at the register when you make a purchase with a debit card. The withdrawal will be free or at least cheaper than the out-of-network ATM fee.
Sign up for online access to your accounts, so that you can check balances, track transactions and move money around from any computer connected to the Internet. Often online transactions are free or cheaper than ATM fees.
OVERDRAFT FEE. Federal law allows banks to transmit checks to one another electronically. The good news is that this speeds payment of checks you deposit; the bad news is that it also speeds payment of checks you write.
The debit card explosion has made overdrafts even more common. Once, banks automatically rejected any debit-card purchase over the available amount. Now those purchases routinely are approved, whereupon the bank charges you an overdraft fee.
Consumer Reports says the median overdraft fee is $34 per bounce, which means half are even more expensive. The disgruntled merchant is likely to charge you an additional $10 to $20, or more. If you bounce more than one check in a year, many banks now increase the fee each time.
Know your checking account balance at all times. Record all checks and debit card transactions in your check register, as well as settlements and other deposits, and keep a running total daily. Monitor your balance online.
When in doubt, don’t make a big expenditure without transferring money from savings to cover it and confirming with the bank that you have enough money in checking to cover it, as well as all other outstanding checks.
Sign up for an overdraft protection plan that automatically moves money from your savings account when your checking account needs it. Usually, the transfer fee is cheaper than the overdraft fee, but check to be sure. Some protection plans put the overage on your credit card; that’s less than ideal because you’ll be charged interest.
When creditors bounce. You’re charged not only when your own checks bounce, but when your creditors’ checks bounce as well – as if that were your fault. Don’t continue hauling for customers who stiff you. Check out brokers’ ratings in the Red Book Transportation Brokers Rating Service or the Gold Book of Transportation Brokers before doing business with them.
Owner-operators now are more dependent on their cell phones than their CB radios, but the one-time and monthly charges that come with the convenience can be bewildering, costly and infuriating. A favorite is the “regulatory cost recovery fee,” which translates as: “The government charged us, so we’re charging you.”
Taxes, surcharges and fees can add 30 percent or more to the advertised monthly rate you thought you signed up for. Before you buy a plan, find out everything you’ll be charged and how each fee is calculated.
TERMINATION FEE. Most cell phone plans lock you into a long-term contract, often two years, which gives phone providers the landlord-like ability to charge you for getting fed up and walking out on them. Early-termination fees can be $240 per phone number – and if you don’t pay them, you keep getting billed monthly for a service you no longer use.
Since U.S. Sen. Amy Klobuchar, D-Minn., introduced legislation in 2007 that would force such fees to be prorated, most major cell service providers have announced plans to do so, meaning the fee will shrink the longer you’ve used the service. It won’t necessarily shrink quickly, though: Verizon prorates its fee by only $5 per month.
Sign with carriers that offer a free trial period, usually from 14 to 30 days, during which time you can cancel without penalty. Once you’re past the trial period, simply ride out the contract before switching.
When your contract is up, negotiate for a better deal with the carrier that presumably is fearful of losing your business. You might even be able to go to month-to-month payment, which will give you much more flexibility.
Consider transferring your old contract – and all future charges incurred – for about $15 or $20 at www.celltradeusa.com or www.cellswapper.com. Be sure to let your old carrier know if you want to keep your phone number, though.
“UPGRADE” FEE. Activation fees of $35 and up per phone especially are annoying when mandated by your friends-and-family plan, but they verge on the outrageous when you have to pay them merely to “upgrade” your plan with the same carrier – which probably was begging you to upgrade in the first place.
All the major cell phone companies once used to automatically extend contracts whenever you changed service plans, but several dropped that practice after a 2007 lawsuit. Special promotions such as “free-phone” offers, however, still include such extensions in the fine print.
If your current plan is cost-efficient and works well, ignore your provider’s sales pitches for other plans.
DIRECTORY ASSISTANCE FEE. One of the oldest phone services also is one of the costliest. Directory assistance fees – incurred when you dial 411 or, within your area code, 555-1212 – range from $1.25 for local calls to $7.95 for international calls, plus taxes. Only checking on a toll-free number at (800) 555-1212 is free.
Look up the number in the phone book or online, then keep a readily available record of numbers you’ve called, advises Morningstar.com’s Sue Stevens.
Other phone fee tips:
Using your phone for anything other than your voice can run an additional $30 or more a month. Simply downloading a ring tone, game or wallpaper could bring a hidden monthly fee with it. Download sparingly, and ditch anything you don’t want, such as text messaging.
You may have additional rights depending on your home state. California’s Telecommunications Bill of Rights, for example, mandates that payments of phone bills must be credited on the day they’re received, not processed, and that new subscribers can cancel service in the first 30 days without penalty.
FUEL-OPTIMIZER FEE. Fleets offer their leased owner-operators fuel-optimization programs that help them plan trips based on diesel prices at locations within the carrier’s network. The goal is to help owner-operators save money and be successful. Why, then, do some fleets still charge for this assistance?
Competition for drivers has made this fee increasingly rare, according to ATBS, the nation’s largest owner-operator financial services firm. If you’re being charged one, crunch the numbers to see whether you’d be better off doing your own optimization with a software program such as PCMiler, ProMiles or Rand McNally’s IntelliRoute.
FUEL-CARD FEE. Many carriers, truck stop chains and trucking organizations have cards that offer discounts on diesel purchases. Some of these cards, however, charge you as much as $3 per purchase. That easily adds up to hundreds of dollars per year. Do your fuel savings from using the card make up the difference? Run the numbers to find out. Study the monthly statement to find out what other card fees you’re paying, too.
Use the card only when you’re making a significant purchase, such as that fill-up. If you’re buying only a cup of coffee and a doughnut, pay cash.
DEBIT CARD HOLD. While not itself a fee, a debit card hold can force you to pay fees you otherwise would have avoided. When you use a debit card to initiate a purchase with an indeterminate total cost, such as a fill-up of diesel, a hold often is placed on a preset sum of money in your account. That amount can be hundreds of dollars more than the diesel purchase, and the hold lasts until the transaction is processed, which could be 48 hours. In the meantime, your checks could be bouncing, costing you overdraft fees and other headaches.
Similar holds are put on big-ticket credit card purchases that approach the card’s limit, but most card holders are unaware of them because they wisely never use plastic to make single purchases that big.
Buy diesel with a credit card, fuel card, check or cash.
TRANSACTION FEE. Cash advances from a fleet occasionally make sense, such as when they’re used for tolls or other expenses to be incurred in the upcoming haul. But habitually getting cash advances for miscellaneous spending money on the road is a bad habit for many reasons, especially the 10 percent transaction fee charged by many fleets.
Pay necessary expenses from your operating account. Stick to your budget.
TRAILER FEE. At some fleets, owner-operators are charged to pull the fleet’s trailers. At other fleets, owner-operators are charged if they don’t pull the fleet’s trailers.
While a trailer fee needn’t be a deal-breaker, you should lease to a fleet that fits your driving preferences and business model, trailer or no trailer. A number of fleets welcome tractor-trailers, while a number of others offer drop-and-hook operations with no trailer fees.
DRUG TEST FEE. It’s understandable if you resent paying for this – though you almost always will, either up front or as a deduction from your first settlements.
You probably can’t avoid this one, but if you don’t hop from carrier to carrier like a hare, you’ll seldom have to pay it.
SURPRISE FEE. Any administrative fee that you didn’t know about when you signed the lease becomes unwelcome when you are dunned for it.
Avoid the surprise, that is, by carefully studying the terms of any lease before you sign it. Have your business service provider or attorney look over the lease on your behalf. If any terms or clauses are unclear or confusing, get answers, and make sure you can live with them. A fee for direct-depositing settlements, for example, might be a bargain compared with the delays and risks of postal mail.
Most owner-operators with 401(k) accounts have their retirement savings in mutual funds. Such savings are wise and to be encouraged, but because they’re designed to accrue money over decades, even small differences in fees can mean big differences at retirement.
The U.S. Securities and Exchange Commission offers this example. Suppose you put $10,000 into a fund with a 10 percent annual return and annual operating expenses – including fees – of 1.5 percent. After 20 years, you have roughly $49,725. But suppose the fund has annual expenses of only 0.5 percent. Then you end up with $60,858, a difference of more than $11,000.
In a fund’s prospectus, look under both “Shareholder Fees” and “Annual Fund Operating Expenses,” two sections required by the SEC. Online mutual fund cost calculators, such as the one at www.sec.gov, enable you to compare funds by seeing the real bite taken by various fees over time. Enlist your banker and business services provider in helping you choose the best options.
Two common mutual fund fees, however, can be avoided simply by investing in funds that don’t charge them:
THE 12B-1 FEE. This fee allows mutual funds to pay marketing expenses, including broker commissions, out of the fund’s assets. In other words, the fund uses part of your investment to pay the broker who sold you the investment in the first place.
THE “LOAD” FEE. “Load” mutual funds take a commission out of your investment – as much as 8.5 percent, the maximum allowed by the National Association of Securities Dealers. “No-load” funds don’t.
A “front-end” load charges you the commission at the outset, a “back-end” load only when you cash out. But some funds take the “back-end” percentage out of your initial investment, while others grab it from the presumably much larger final amount, which can cost you many thousands of dollars.
Here’s the kicker: Forbes reports that no-load funds perform just as well over time as load funds.