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You may have seen an advertisement for a special rate on a new credit card, or your local bank is offering a bonus for opening a new account with them.
Before you start thinking about opening a new bank account or getting that new credit card – there’s a few things you may want to know first.
Here are 12 secrets your bank or credit card company doesn’t want you to know:
1. The Minimum Payments is a Con
The only regulations Banks have to follow regarding minimum payments is that they must disclose the consequences of making only paying the minimum each month.
They must show how long it would take to pay their balance off at the minimum rate plus show how much they’ll need to pay each month to pay off the balance faster.
There is nothing about banks can set this minimum amount, so they usually set the amount that only pays a little off the principal, which extends the time to pay everything off, which incurs interest.
Therefore, you’re paying more than you actually realize. For example, you have a credit card with 18% interest and a balance of $10,000. The minimum payment the company tells you to pay each month is $200.
The interest for a month is about $150. So, $50 towards the principal isn’t very much and 12 months payments is $1800 in interest and only $600 on your balance. Sucks eh?
As I mentioned in my 7 Great Financial Resolutions for 2018 post is to set up weekly bill payments instead of the minimum payment. You’ll end up paying more on the debt and it gets paid off faster.
2. Late Payments Cost more than a “Late Fee”
There are some Credit Company advertising stating that late payments won’t incur a fee. Sure, they “won’t” charge a late fee per say, but that charge will come in the form of an interest charge on your balance and may have to wait 2 months before the “grace period” is reinstated again.
Also, depending on how late the payment was, you can get reported to the credit bureau and have that affect your credit score.
Lastly, if it’s a fairly new account, some banks and cards can apply the “Penalty APR” for all future purchases, which can be as high as 29%.
3. Banks want you to Bank in Person
With the conveniences of mobile banking, online banking and ATMs, banks actually prefer you to bank in person.
There’s a hidden reason for this, the Tellers don’t just process your requests, they’re actually required to make a number of sales a month as well as steer customers towards the personal bankers offices. There’s a quota and a commission, so their job pretty much depends on it.
Gone are the days of simple deposits and withdrawals and simple chit-chat. Now they listen to you and subtly suggest products that will solve your “problem”.
4. Banks change the order of Transactions
Maybe you checked your bank balance and figured out you have enough to spend for the day before tomorrow’s check comes in. Then you’re surprised that you’ve gotten an overdraft fee, some are as high as $30 these days.
This is because banks do not do all of your transactions in “chronological order”. They do the transactions either by size order, or by importance. Here’s how most banks prioritize your transactions:
- ATM & Debit Transactions
- Branch Transactions
- Checks Cashed (in bank network)
- Transfers (in bank network)
- Wire Transfers
By Dollar Amount:
- Web Bill Pay
- ACH Debits & Miscellaneous Debits
5. More than One Overdraft Charge
You may find that you’ve been charged more than one overdraft fee when you knew you had one transaction that was overdrawn.
Similar to the reordering of transactions I mentioned earlier, when you know you’re going to overdraw on one transaction, check to see if that transaction was the biggest one.
Banks reorder the transaction amounts too. So, if you had $60 left, and you had 4 transactions – 3 for $10 each = $30, and the last transaction was $45, you think you’ll only get one overdraft fee for the $45.
But that’s not the case, the bank will reorder the transactions – $45, $10, $10, $10, so you’ll get charged two overdraft fees for the last two $10 transactions – a possible $60!
6. Online Banking Isn’t All That Safe
In a study by the University of Michigan, they researched 214 different financial institutions and found that 76% of them had “design flaws” which made it easier for hackers to get into.
As much as we love the convenience of online banking, be sure to keep changing your password every several months, and check their security and make sure that the website didn’t send you to an unsecured site.
7. Avoid Cards With a “Universal Default” Clause
This is on some bank-issued credit cards (about 45% of them out there) and allows the bank to review all of your open accounts and see if you’ve been late on any of them. This then allows them to raise the interest rate or cancel your card altogether.
So, if you’ve been late on a card payment, mortgage or car payment, or even on your utility, they will find out and charge you higher rates. This clause only protects the credit card companies and banks and not the consumers at all.
Your best bet is to either find a credit card without this clause, don’t ever be late again, or don’t go into debt again. I think it’s easier to find a card with a standard default clause.
raised on you if you’re late on an entirely different bill.
8. “Fixed Rates” aren’t always fixed
Got a card that promises a “fixed interest rate”? Credit cards have no regulation on interest rates and can raise your interest at any time.
They are required to notify you at least 15 days before the hike, but sometimes that’s buried in the back of your monthly statement, so be sure to read everything thoroughly.
9. The Grace Period isn’t all Graceful
You may think after you’ve charged something on your credit card that you have a “grace period” before interest is incurred on it, sometimes you do, sometimes you don’t.
For example, you charge $150 at the beginning of the month, you make a payment of $100 in the middle of the month, and then you pay the last $50 four days after the due date and think you’re safe.
Nope, some cards grace period starts the moment you’ve made a payment on it, so the grace period started after the $100 was paid. Now you’ve got interest on the $150 to pay for.
Another sneaky factor is that many credit card companies are shortening the grace period – some are 21 days or less nowadays.
10. There are limits on the “No Limit” Cards
Having a “no limit” credit card may sound awesome and useful in emergencies, until you read the small print (hidden in the back somewhere) that there actually IS a limit and it’s based on your spending habits.
So, the real truth is that there’s no “Pre-set” limit, but the limit will change as you spend more.
11. Miscellaneous Hidden Fees
The variety of hidden fees buried in the banking “fine print” is mindboggling. Many of these fees they don’t tell you upfront such as:
- $5 fee to not overdraw on your account. So instead of incurring the more expensive overdaft fees, some banks are charging you $5, just to drop the overdraft protection and payments are declined instead. (Which in itself incurs fees from the creditor – up to $30)
- Fees for large deposits – the opposite of the minimum balance fee. They’’ charge you for depositing large amounts. One bank allows deposits up to $10,000 but charge 20¢ per $100 after that!
- Fee for closing your account early – The fee can be around $25 – $50 if you close your account within a time after opening it.
- $5 fee for returned mail – if you move and forget to tell them, you get charged $5 for each letter returned to them.
12. Reward Cards are sometimes not so Rewarding
Got a credit card that offers rewards for spending – cash back, air miles, rewards, etc. Sounds great eh? Just keep an eye on those rewards because these benefits can (and often) change.
Changes such as:
- Expiration dates on points
- Point amounts needed to claim changes
- Places to earn rewards changes
- Amount percentages change over time (2% back changes to 1.5%, etc)
13. A Closed Account isn’t “closed”
If you closed an account, took the money and ran, you can still be charged for it. If you closed an account but forgot to change any automatic payments or have outstanding checks on that account – you will be charged overdraft fees for them.
A good way to avoid this is to open your new account and start your automatic payments and check on that new one, leave the old one open for a month or so just to be sure you haven’t forgotten any debits, and then close it after no activity.
One great way to get rid of most of these fees is to ask them to. Most banks will be willing to waive these fees especially if you’re a long time customer.
Another way to lessen these hidden fees and save even more money is to use your local Credit Union. They offer much lower fees, and offer much lower interest rates – up to 3% lower on used car loans, 2% lower on new car loans, and about 1% lower interest on credit cards.
This is possible because they do not have large marketing budgets so their “overhead” is lower.
The final word is to be sure to learn to manage your money, read the fine print, chose an account that fits your needs, and don’t be afraid to change accounts when your needs change. Stay diligent with your finances, save receipts (even from the ATM), and don’t be afraid to dispute any charges.