More recently, several regional banks, including SunTrust and Regions, that had already been charging a monthly fee to use a debit card had to abandon the fee once it was popularized by the media in the wake of Bank of America’s decision to implement the fee. One can only wonder how their customers reacted prior to BoA implementing the fee.

The lesson from all of this is that customers need to be very watchful of banking fees and charges. Do not just throw away those notices you get from your bank that are full of fine print, and carefully scrutinize your statements each month to ensure that no new fees are draining money from your accounts.

As a long-term solution, consider switching to a local bank with lower fees or a credit union. Credit unions reap certain tax rewards which allow them to profit without having to gouge deep into their customers to generate revenues.

Beware especially of your free checking account being subtly converted into a non-free checking account, without having the words "free-checking" removes from the name of the account. The current favorite is to implement or raise the minimum balance required for a "free" checking account. Whenever your balance drops below the minimum, you’ll be charged a fee. If you account drops below the minimum on a regular basis, that is the same thing as paying a monthly fee.

Again, watch your bank statements closely. While your bank can’t lie outright to you, they won’t make it easy to spot. Expect something financial sounding to throw you off the trail. Be sure that you know what every charge on your account is and call the bank to ask for an explanation of the ones you don’t understand.

Banks Charge High Fees Because They Can

As a former financial advisor I would review statements that people brought in. Oftentimes, they had no idea what they were paying or being charged. They just made sure that their balance never went negative and that was it. Everything else just slipped under the radar. This happened to both wealthy and lower net worth clients.

One client was paying $35 per month because they never set up a direct deposit that they were supposed to in order to get a free checking account. Turns out they had been paying the bank fee for so long, they thought it was one of their monthly bills!

Banks gouge customers with high fees because they can. When you don’t pay attention, fees slip by without complaint.

When you do pay attention, a cranky phone call is likely to get the fee removed. The bank knows that as long as you don’t close your account they can continue to charge you all the other fees you don’t notice or complain about. In fact, they know the odds are good that if they charge you the same fee in the future, you won’t complain about it.

Banks count on the fact that it can be a pain to transfer accounts. As long as they inflict small enough wounds to keep you from leaving, they win.

Don’t be a sucker. No matter where you bank now, open a second savings and checking account at another bank or credit union. You don’t have to use the accounts, just leave them there. If you ever do have to change banks, your new accounts are already ready and waiting. And, you’ll know if they are really free or not. If a mysterious charge appears, close the account and find a new bank.

Not all banks are terrible, but the ones that are aren’t really afraid of you leaving. Even if YOU leave, there are plenty of lemmings left to be led to the cliff.

New Bank Fees Coming

Make no mistake, Bank of America and other large U.S. banks have made promises and revenue projections that they cannot keep by earning money on banking. Instead, they must find ways to boost traditional revenue streams. Having already raised every fee they have to the maximum amount they think they can get away with, the only course of action is charge new fees, somewhere, somehow.

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Bank of America Cancels Debit Card Fee originally published at Finance Gourmet

Wells Fargo and Chase Bank have both announced that they will not be gouging their customers by charging a $5, or even $3, monthly fee for customers using their debit cards.

It seems that even Bank of America, home of the screw-our-customers mentality to profits, is blinking a little bit by offering the dolts who are still its customers more ways to dodge the fee, but will still gladly yank $5 per month out of your account if you dare to use your debit card without meeting one of the bank’s other conditions.

Banks are trying to find more ways to charge higher fees to their customers because they are no longer capable of actually making money on banking and lending, which is bad news for investors and customers.

If you are sick and tired of all your bank’s fees and charges, the answer is pretty simple. Just find a credit union in your area and join. For a minimal interest-earning deposit in a savings account, you can enjoy higher savings interest rates and lower fees.

Just use your bank’s website and a credit union website to compare fee schedules and you’ll see at just a glance how much better a credit union can be for you and your personal finances. Search for "fee schedule" and add "site:yourbankwebsite.com" to quickly find the schedule of fees for your bank.

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Some Banks Not Charging Monthly Debit Card Fee originally published at Finance Gourmet

Debit Card Overdraft Protection

You may be aware that recent banking reform legislation shut down some of the worst abuses that banks and credit unions used to generate big fee income at the expense of their customers. One of those banking abuses was so-called overdraft protection, which in reality is just a way to charge you big fee.

When you write a check, that check gets sent to your bank. Your bank pays the amount on the check out of funds in your checking account. Overdraft protection turns on when you don’t have enough money in your checking account for the check to clear. Most people assume that if there is not enough money in their account to pay a check they wrote that the check bounces, but not if there is overdraft protection.

The way overdraft protection works is that instead of returning the check you wrote for insufficient funds, your bank pays the check, and gives you a negative checking account balance. If this were free, or even reasonably priced, then you would say thank you and be grateful that your bank takes such good care of you. Unfortunately, this is not the case.

Instead, your bank charges you a fee for using the overdraft protection "service". That fee is often just as high as the fee charged for bouncing a check. The bank gets to collect a big fat fee. The only thing the customer gets out of it is that you don’t have to deal with the merchant you wrote the check to and pay any bounced check fees from them. Reasonable people can disagree on whether or not that is a service worthy of the fee charged for it.

When it comes to debit cards, however, overdraft protection is almost always a scam.

Normally, when you try and use your debit card to pay for something and you do not have enough money in your linked checking account, the transaction is declined. The cashier hands you back the card, and most people use a different card instead. Then, you would know that there is an issue that you need to check into right away. While potentially embarrassing, this situation is free, and there is no financial harm to you.

When your debit card has overdraft protection, then your bank MAY approve the transaction even if you don’t have enough money in your checking account. Of course, for using the overdraft protection service they charge you a $35 overdraft protection fee, and you never have any idea that there was a problem. In fact, you might go on to use your card four or five more times that day, and each time you will be charged another $35 fee. You could rack up over $100 in fees easily thanks to your bank’s "service."

Imagine that you don’t realize that your paycheck didn’t direct deposit on the day you thought it would. You use your debit card to buy lunch for $10, pay for some books $15, and then rent a few movies at Redbox $3. You spent $28 for day, except you actually ended up spending $118 for the day because you are nailed for three overdraft protection fees of $30 each.

In a world where most people have more than one way to pay, it is slimy and underhanded for banks to pretend that they are doing you a favor by charging you $30, $40, or even $50 to approve a transaction on your debit card. What is worse, is that nobody ever explains this to you, AND, they enroll you in this money draining "service" automatically when you sign up. Sure, it is "disclosed" to you, in the 30 pages of fine print you get with your account.

You can see why Congress tried to ban this behavior. Powerful banking lobbyists succeeded in getting the rule watered down, but now you have to "opt-in" to overdraft protection on your debit card. That is why all of those notices have started showing up.

Unless you have no other credit cards or debit cards and never carry cash, DO NOT opt-in to overdraft protection on your debit card. Just use another means of payment if your card is ever declined. You’ll save lots of money.

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Overdraft Protection For Debit Cards originally published at Finance Gourmet

All of this, of course, is why you need a good trusted financial advisor in the first place, but that is not why we come here today.  I want to show you something from “behind the scenes” as the Mole says.

Financial Advisors and Commissions

Let’s make up a fake client with a $500,000 account to be invested.  Let’s ignore all taxes and legal implications for the sake of simplicity and concentrate on commissions.  We’ll also assume that the account value stays the same over the years for simplicity.  Do realize though that as your account value changes the fees would change too.  (These are only the fees from the advisor side.  He doesn’t get any of the other fees that you might pay; they go to someone else.)

Option 1: Wrap Account or Fee Account

The standard wrap account charges the client a 1% annual fee to manage their funds.  The firm or advisor eats all the trading costs.

One Year Fee = $5,000

Continuing Fee Each Year = $5,000

Fee over 10 years = $50,000

Option 2: Front-Load Mutual Funds (All one fund family)

Loaded mutual funds take a big knock because of their highest fee (usually around 5.75%) but that fee goes down the more you invest.  The average mutual fund family charges around 2% for amounts over $500,000.  Your advisor usually also receives a 0.25% fee called a trail to the “insiders”.  You’ll see it on your prospectus as a 12b-1 fee.

One Year Fee = $10,000 (Load)

Continuing Fee Each Year = $1,250

Fee over 10 years = $22,500

Option 3: Variable Annuity Suze Orman (and everyone financial writer) Nightmare

Variable annuities are always said to have the highest commissions.  That is only sort of true.  Most variable annuities offer different payout options including all the payout in one year or a smaller first year payout with an ongoing payout.  The financial press always talks about the HUGE COMMISSIONS these products have, so we’ll play their game and go with the big up front payout.  The up-front varies, but on regular products from the big companies it is around 7% to 8%.  You’ll hear about higher ones, but they aren’t the usual products and may not even be approved to sell by lots of firms.

One Year Fee = $40,000

Fee over 10 years = $40,000

Payouts

There are other options, but we’ll stick with these to make things easy.  Now, before you get excited, keep in mind that your advisor doesn’t get to keep all of this money.  Every financial advisor gets a little bit different deal, usually depending on who he or she works for, and how much they produce (sell).  But, this gives you a ballpark idea.

A financial advisor who works for a company that pays for expenses like rent, utilities, staff, and so on generally gets something between a 40% payout and a 60% payout.  A payout is how much the advisor gets from the commission he generates.  So, for easy math let’s say the advisor gets a 50% payout which means if he generates $10,000 in commissions, then he gets paid $5,000 and his firm keeps $5,000.  With me so far?  Good.

An independent advisor gets a higher payout but has to pay all of his expenses including staff benefits and so on.  We’ll stick with the “house” guy for now.

So in our above examples, our advisor makes $2,500 the first year and $2,500 every year after that off of Option 1.  He makes $11,250 the first year and $1,250 every year after for Option 2, and he makes $40,000 the first year and nothing after that on Option 3.  Notice how Option 1 and Option 3 actually make the advisor around the same amount of money over the long run.  This isn’t actually true.  If your advisor is making you even 8% return on your investment then the Option 1 numbers go up and up.  After 5 years the account would be worth over $700,000 (now getting $7,000 per year in fees) and after 10 years it is over a $1 million ($10,000 per year in fees!)

That is why a financial advisor who “screws” you into a variable annuity may not only not be a good advisor for you, but may not be good at his own money either.  Of course, this would help the advisor meet short term goals, but he has basically agreed to service your account for free over the life of your annuity.

In fact, the advisor selling you those loaded mutual funds is probably giving you the cheapest long-term option (he isn’t lying when he says that.)

Do It Yourself

As with everything, everywhere, it is cheaper to do it by yourself.  Remodeling your kitchen?  Save thousands doing it yourself.  Oil Change?  Cheaper if you do it yourself.  Brain surgery?  Good luck, but probably way cheaper if you do it yourself.

Your investments are no different.  Of course, if you don’t know anything about tools and electricity and so on, maybe it is still best for you to hire someone to remodel your kitchen.  He will make money when you do.  If you don’t know anything about investing and managing your money maybe you should hire someone to do it.  He will make money when you do.

Annuities and Insurance Usually Suck as Investments

Don’t get me wrong, I’m not looking to defend annuities as investments.  The vast majority of them are terrible investments for most people and whole life insurance is even worse.  However, there are people for whom they make perfect sense.  I deal everyday with people who are retiring from a company where they spent 30 or 40 years.  They have a 401(k) balance (thanks to matching) of around $300,000 and a pension where they can get a one-time payout of $400,000 or a certain number of dollars per year for life.  But, that number goes down if your spouse gets paid for life after you die.  Also, your kids get nothing if you and your spouse die after just two years!  On the other hand, you don’t want to run out of money before you die.  These are tough questions when it is your money, and your whole life, and not just an exercise on paper.

For these people, annuities sometimes make sense because they can get more per month than they could with including their spouse on the pension, and their heirs will get the remaining balance if they die early, and if they live a long time, the annuity will pay for life.  Yes, I will get a commission for selling them that product, but I ask you, whole has the colder heart here?  Me, who sells them a product that meets all their needs and keeps them from ever having to stare at the T.V. and worry if they will run out of money because of the economy, or the person who says do it yourself, you big baby.  Look at these numbers in black in white.  What’s wrong with you?  Don’t you know you are paying for that help?

Rip-Off Cliche

Seriously, is there no other way to rip off financial planning clients than to sell them a variable annuity?  It seems that every time a financial “insider” or “investigator” runs out of ideas they write a column about variable annuities and trot out the famed widowed-orphaned-school teacher who was sold variable annuities with her tiny pension.  There are TONS of ways you can get ripped off including plenty of do it yourself ways.  Don’t be lulled into security because you aren’t getting an annuity.

Related posts:

1. Do You Need a Financial Planner or Financial Advisor?
2. Find the right financial advisor (in under 200 words)

A Financial Advisor Makes Money originally published at Finance Gourmet

So, without further ado, here are the Top 10 Fine Print Gotchas:

1. That’s Not It
   • One of the most common [tag]fine print[/tag] [tag]gotchas[/tag] is when the really great picture you see isn’t actually what they are talking about. For cars you’ll see a fully equipped XJT9X version in the picture when the ad is talking about the base no-options model. For others the fine print will point out that the picture is only “representative” of the product, meaning it is pretty much like that, but not just like that.
2. Rebates
   • The one I really hate these days is rebates. Electronic store ads are filled with them. A great deal on a monitor for $199? Sure, but you will pay $279 today. Then, you can get a rebate from the store (but it’s an “easy” rebate) for $40 and then you can get another rebate from the manufacturer for $40, but only if you also buy Wango Wicket Adventures (at full price.) The car guys get you here too. $199 / mo. — of course you’ll need the recent graduate rebate, and the military service rebate, and the astronaut rebate…
3. Fees
   • For this one I’d like to give a big welcome to the [tag]cell phone[/tag] companies. $39.99/mo. for 500 minutes, but (super fine print) it doesn’t include fees and taxes. The real burn here is that the fees are phony charges that get official sounding names (usually copied from real land-line phone bills.) The tipoff for this fine print gotcha is to find the words “Does not include…” Watch for it on anything where you can be charged for delivery or setup.
4. You Aren’t Just Buying One
   • $9.99 is a great deal. Too bad you will only pay that for the first one. In this fine print gotcha the price is actually the price of a subscription to buy several more full priced ones. Watch out for a purchase that requires a credit card or your billing information. If you can’t buy one for cash without giving anyone your name, then you are signing up to buy a bunch more. Look for fine print like “Purchase enrolls buyer in…”
5. It Won’t Work…Until You Buy Our Service Too
   • The fine print here will inform you that you are buying a very expensive doorstop that is until you “activate” it. Your fine print tip-offs are “must be activated…” or “requires [tag]subscription[/tag]…” or “requires service…” A cell phone is an obvious example. Others include T.V. recorders, XM radios, OnStar, and so on. Watch out because the fact that you have to buy expesnive monthly service is often hidden by a free “trial” period. Then, watch out for the next one.
6. Well It’s Free Now…We Won’t Tell You When It Isn’t
   • This one catches tons of people. An offer for a service. The service costs money. No problem, you can try it free for 90 days. The fine print? They won’t ask you if you would like to keep it for 91 days. In fact, the only way you can have the free trial is if you give us your credit card information, so we can keep billing you after you forget to cancel your free trial. I get calls all the time from people who bought cars with satellite radios. They came with a 12 month free trial. When they notice they are paying $19.99 a month for their radio they freak out. “Oh, the trial period ended,” followed by my favorite lie in all of corporate America “We did it for you.” “As a service to ensure our customers get uninterrupted service we automatically…” — Beat this one with a Savvy Credit Card Trick.
7. We Don’t Have Any…But Buy Something Else
   • Most commonly associated with Sunday ads. The super great price for the fax/phone/deep-fryer? The fine print says “Limited to Quantities in Stock” or “No Rain-Checks” followed by “In-Store Only”. You are there when the doors are unlocked Sunday morning and it’s already sold out? Oops. Stocking error. You could try the store all the way across town.
8. It’s Not A Deal At All, But We’ll Hide The Price For You
   • Common on anything that you make monthly payments for, this fine print explains that you aren’t really saving any money, instead they are charging you per month instead of upfront. The mortgage and home equity guys love this one. No Closing Costs! Fine print=closing costs financed into loan. Look for tip off words like “costs financed” or “lower rate may be availible”
9. Sorry Mr. Gates. Your Credit Isn’t Good Enough
   • Dealing with banks or lenders brings out this one. $199/mo. only if your credit score is higher than a home-schooled genius on the SATs. This one comes with fine print abbreviations “W.A.C.” means “With Approved Credit”. Guess who gets to decide if you are approved?
10. Dear Long-Term Customer, We Hate You
    • Hello, Cable and Satellite companies! Perhaps the most misguided marketing technique in recent memory. Hey, there is a great deal at my favorite shop? I love going there! I’ll go down today and get that great deal! Sorry Charlie. This deal is “For New Customers Only”. In other words, we are hoping our low price gets someone to try out our stuff so that we can charge them what we charge you later on! Most common deal right now is the $99 for phone/Internet/cable from Comcast, Qwest, AT&T, Verizon and so on. Fine print tip offs: Look for a definition of what a new customer is. “Must not have used Super Great Service in past 12 months.”

• The one I really hate these days is rebates. Electronic store ads are filled with them. A great deal on a monitor for $199? Sure, but you will pay $279 today. Then, you can get a rebate from the store (but it’s an “easy” rebate) for $40 and then you can get another rebate from the manufacturer for $40, but only if you also buy Wango Wicket Adventures (at full price.) The car guys get you here too. $199 / mo. — of course you’ll need the recent graduate rebate, and the military service rebate, and the astronaut rebate…

• The one I really hate these days is [tag]rebates[/tag]. Electronic store ads are filled with them. A great deal on a monitor for $199? Sure, but you will pay $279 today. Then, you can get a rebate from the store (but it’s an “easy” rebate) for $40 and then you can get another rebate from the manufacturer for $40, but only if you also buy Wango Wicket Adventures (at full price.) The car guys get you here too. $199 / mo. — of course you’ll need the recent graduate rebate, and the military service rebate, and the astronaut rebate…

There you go. Top 10 Fine Print Gotchas. Hope it saves you some [tag]money[/tag] and aggrevation. The trick is to always skim that small text at the bottom. Keep in mind the trick to make the first line of fine print really complicated sounding, and not very important. This is so you assume the rest isn’t important. The most important fine print is probably the lines in between the first and last fine print points, so definately make sure you read those.

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Top 10 Fine Print Gotchas originally published at Finance Gourmet