Hidden costs lurk at every turn in banking, insurance and car yards, to mention a few
KEY POINTS:
The media is awash with advice about how to save cash. But as well as trying to feed your family on $10 a day, it's worth turning your attention to those pesky fees you're charged at every turn. They can add up to hundreds of dollars
a year or more.
Fees are often out of sight and out of mind. You don't realise they've been tagged on to the bill until you get it and then you probably don't want to complain or can't be bothered.
These little hidden fees charged by banks, insurance companies, fund managers, car yards, restaurants, airlines and plenty of other organisations eat into what could be a tidy sum to invest.
Banks have all sorts of hidden charges that you pay if you don't watch out. My biggest bugbear is a fee of $1.50 charged by the ASB, where I bank, to save details of people I pay regularly online. Yet saving these details involves no human interaction at all. At Kiwibank, in contrast, I'm invited to save the payee's details for next time without charge. Other banks will charge $2 to change the amount of an automatic payment - even though the change is entirely electronic.
The banks' argument is that it costs money to run an online banking service and the money has to be recouped somewhere. The reality is, however, the more of us who use online banking, the fewer human beings and branches the banks need.
The Consumer website, Consumer.org.nz, has a bank fee calculator.
Two of the most unfair and unnecessary fees are dishonour and the lesser known honour fees. Dishonour fees are charged if you bounce a cheque or an automatic payment fails because you don't have sufficient money in the account. Often the charge is around $30. Honour fees are even more outrageous. They are charged for exceeding your overdraft or other limit where the payment is still honoured. These fees can soon add up. It's a matter of being well organised so you never incur them. That might involve having two accounts: one for paying bills and another for day-to-day spending. Or simply going online regularly to check and pay bills.
Offshore service margins are a cut banks take when you use your credit card overseas. When I recently spent $1000 with an Australian firm, the ASB charged me a conversion rate, which was weighted in its favour, and then to add insult to injury, it whacked an "offshore service margin" of $24.38 on top. Ouch.
Lenders make money from all sorts of hidden fees with mortgages. The TSB, for example, has 20 such fees listed on its website, ranging from establishment fees, to security discharge fees, and including other periodic fees such as mortgage priority registration fee, interest rate fixing fee, transfer to family trust fee, rearranged security fee and so on.
It's not just banks that want their pound of flesh. Public car parks can be very expensive places to be if you outstay your welcome for whatever reason. Towing firms can charge what they like - which could be nearly $200 as well as storage fees. But, says Consumer, if you get into your car before it's towed away, you can't be charged a bean - no matter what the driver tells you.
While on the subject of motoring, why can't car companies quote the real cost of buying a vehicle? The headline price for a new vehicle is bumped up with "on road charges". By law these charges must be made clear to buyers. Even so, why not simply quote the cost of buying the car? I'd recommend that buyers simply refuse to pay these charges and view it as a form of bartering the price down.
Insurers are at it too. Life insurance premiums are steep enough, but many insurers charge an annual fixed dollar "policy fee" for administration. This is another way of clipping the ticket without the customer realising just how much they will pay a year.
The fees charged by managed funds (including many KiwiSaver funds) are legend and often well hidden. There will almost always be an upfront fee with managed funds which can be as much as 5 per cent, an annual management fee and other fees such as switching fees for switching between funds. Other fees commonly charged, according to Retirement Commissioner Diana Crossan, include:
* Consulting fee
* Monitoring fee
* Servicing fee
* Administration fee
* Associated costs
* Brokerage
* Investment fee
* Out of fund costs
* Trustee fee
* Performance fee
* Exit fee
This doesn't cover everything. Many funds in New Zealand - especially those investing overseas - don't choose the shares or other underlying investments themselves. They buy into other funds or funds of funds, which in turn may invest in yet another layer of funds. At each level the fund manager takes a cut, which is reflected usually in a smaller return on an investors' money.
Fund managers will often quote their fees as a Management Expense Ratio. Over and above that there are irregular charges such as entry fees, servicing fees, switching fees or performance fees.