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Common Hidden Fees and Banking

By: Lucy Debenham BA (hons) - Updated: 9 Sep 2012 | comments*Discuss
 
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Few things are more frustrating than seeing your money disappear bit by bit as result of hidden fees and charges. When your bank is responsible for nibbling away at your money, it only adds insult to injury. Is it possible for you to conduct your financial affairs without having the money leak away at every turn?

Hidden fees in the banking industry can usually be found in three main areas: accounts, loans and credit cards. A couple of years ago avoiding hidden accounts fees was easy because most current accounts in the UK were 'free'. Recently, however, hidden banking fees associated with current accounts seem to be making a return. Unfortunately, most fees connected with other banking products, like loans and credit cards, have remained with us from the beginning.

Current Accounts

When you're searching for a bank account in the UK, there are some things that you should be watching out for. Some accounts require that you maintain a minimum balance, and if the funds in your account ever drop below this minimum, you'll be liable to pay a fee. Banks have also been known to charge an account maintenance fee, which is automatically withdrawn from your account every month regardless of your balance.

Technically, there's another kind of hidden fee that you may face at any bank at which you open an account. The cost you encounter here is the difference between the interest the bank pays you and the interest they charge when lending it out. This is most likely unavoidable, but it may be possible to minimize the difference.

Loans

Making loans is a primary banking activity and there are almost always hidden charges connected with lending. In the old days, if you needed a loan, you were forced to visit your own, personal bank. But today, comparison shopping for loans is remarkably easy. It's a simple matter of investigating a wide range of banks and compare the published fees they charge for lending money, specifically the annual percentage rate (APR).

Unfortunately, the interest rate charged is only part of the story. You may also be liable for paying redemption fees, which are actually penalties for paying your loan off early. The threat of a redemption fee may not concern you if you know there's no possible way you'll be able to pay the loan off early. However, if your financial position improves in the future, you may want to eliminate this kind of surprise.

Automatically adding loan insurance to your lending contract is another way that banks can extract additional income without your prior knowledge. The best way to avoid paying extra hidden fees for loan insurance is to remain vigilant when signing loan documents. If you're applying for a loan online, you may need to deselect a checkbox to opt out of loan insurance. You should also pay particular attention to how the interest on your loan is calculated. The amount that you owe could change a great deal depending on whether the bank charges interest on a daily schedule or calculates interested by the month.

Credit Cards

Finally, there are credit card fees. Everyone is aware that credit cards charge interest. But depending on the card you have and the way you use it, there could be other surprising charges. In the past, many credit cards dropped annual fees to enhance their marketability. However, it seems that once again annual fees are set to return, so you need to be on the lookout for them once again.

If you read through the fine print on your credit card agreement, you may find a list of extra charges the credit card issuer can add to your bill if certain events occur. For example, if you spend over your credit limit, send in your payment late, or if your payment bounces, you may be liable for rather substantial fees. If enough fees are added to your bill, even a very attractive interest rate becomes a moot point.

It is not possible to completely eliminate fees and charges connected with banking services. For banks to remain in business, they do need to make a profit. However, it should be possible for banks to succeed without resorting to the use of hidden charges. If banking regulations ever catch up to marketing innovations, hidden fees may one day be eliminated. But until then, the responsibility for avoiding them will lie with the consumer.

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