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Money Matters

How to Not Get Hammered By Hidden Financial Service Fees

My family sweats the details. My late Aunt Flo used to collect two-for-one restaurant coupons. She lovingly treated me to some horrible meals. Her son Paul has made a science out of getting the most from airline and hotel reward programs. On his last New York visit, I believe Marriott gave him, like, nine upgrades. The chain has formally elevated him to God status.

I’m not a zealot about fees, but I do pay attention. You should, too. Consider: according to NerdWallet, over 40 years a 1.02 percent annual fee on your investments could cost you $590,000 in retirement savings. If compound interest is, as Einstein said, “the eighth wonder of the world,” investing fees are the eighth circle of Hell, compound interest in reverse. Not only does your annual fee cause money to disappear, it robs you of the chance to earn decades of returns on that sum. And flesh-eating fees hurt in another way as well. A 1.02 percent fee on $50,000 is bad enough, but as your assets grow, the amount you’re shelling out in fees grows as well.

Now, NerdWallet assumes your investment alternative is fee-less. But that’s not so far from reality. Fund and ETF fees have plunged. The cheapest way to buy the S&P 500 is via the VOO ETF, which costs .05 percent per year. The Schwab U.S. Large-Cap ETF (SCHX) focuses on the biggest companies in the S&P 500 and costs just .03 percent per year.

Employer plans. Two-thirds of investors think they pay no 401(k) fees, which is, to put it politely, delusional. One study found that 401(k) investors pay .86 percent more per year for actively managed funds than for index alternatives. Actively-managed funds seldom deserve this premium. If you own any, make sure yours do. To find out the total cost of a fund, go to FeeX, SigFig, GuardVest, or Brightscope.

You may not be limited to only the funds your employer offers. About 20 percent of employer plans allow you to open a “brokerage window,” which lets you actively manage part or all of the portfolio. Instead of using this for day-trading, try buying cheaper alternatives to your plan’s funds or ETFs.

Advisers and planners. Most advisers will charge you about 1 percent a year. Make sure they earn it. A cheaper alternative: pay someone a flat fee to set up your portfolio and then manage it on your own. Whether you hire someone or go solo, never buy a mutual fund with a sales load. A load is just money down a rat hole.

Annuities. Annuities used to be the Babe Ruth of the fee kingdom. Deals are now better, but be very careful before committing.

Credit cards. Fees are rising. Late fees are often $35 (if you’re a good customer, call to get this waived). Cash advance fees are typically 5 percent or $10. Some charge you $49 for raising your credit limit, while others will charge you for adding another user. (My teenage daughter now has a card, God help us.)

But paying an annual fee can make sense. Some cash-back or reward cards are good deals. My wife and I have an Amex Platinum card ($550 a year), but the math works for us. You get a $200 annual Uber credit, which is great, but only if Uber serves your town.

The key is picking a card that suits how you live. Some cards charge 1-3% foreign transaction fees when you travel abroad. Most travel cards don’t, nor do Discover and Capital One.

Bank accounts. Overdraft fees can be killers, says Claes Bell, a data analyst at bankrate.com. He says banks can charge $35 per transaction, which can multiply if you keep writing checks or using your debit card without realizing you’ve exceeded your balance. Solution: either opt out of overdraft “protection” (it’s a protection racket) or link your checking and savings accounts. (You still might pay a $10 transfer fee when the bank moves money from your savings.)

Beware of monthly checking account fees, which are increasingly common. (They average $6 a month, but could be as high as $12.) Banks are raising the balance amount you need to avoid the fees. So consolidate your accounts to dodge the fee, but be sure you pick a bank with convenient ATMs because ATM withdrawal fees are rising as well.

Alternatively, you could join a credit union. Bell says most of them still offer free checking. To find one near you, go to the National Credit Union Association or asmarterchoice.org.

Other late fees. If you’re late with your mortgage payment, you might have to pay 4-5 percent of the amount due. Ouch. Set up autopay. In fact, do this for as many bills as you can.

Andrew Feinberg is a writer and money manager. He is the author or co-author of five books on investing and personal finance, including Downsize Your Debt. His work has appeared in the New York Times MagazineGQ, Barron’sThe New York TimesPlayboy and The Wall Street Journal, among other publications.

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