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- Personal Finance
By Andrew Leckey
You can't track fees without a scorecard in the topsy-turvy 2010 financial world.
While bank fees and credit card rates have increased, some fee-only financial planners scaled back their fees in deference to clients whose principal had dwindled. Meanwhile, international mutual funds continue to charge higher fees than domestic funds.
This is a time to shop carefully, avoid unnecessary costs and pay close attention to the price of everything, which isn't a bad idea whether the economy is quirky or not.
Let's take bank fees first:
"Bank fees have been going up for the past decade and that is unlikely to change in the coming decade," said Greg McBride, senior financial analyst with Bankrate.com, North Palm Beach, Fla. "The good news is that the fees are completely avoidable."
Starting July 1, consumers can "opt in" to allowing their bank to overdraw their debit card or ATM accounts. The average overdraft fee for withdrawing more than your account balance is about $30. Consumers who don't opt in will not be allowed to overdraw their accounts.
"Overdraft fees are the equivalent of speeding tickets," believes McBride. "They're completely avoidable if you just keep closer tabs on transactions and your account balance."
Some financial planners have shown empathy for clients:
"Some of the fee-only financial advisers decided to reduce their fees to clients in light of the negative things that went on in the market," said Evelyn Zohlen, president of Inspired Financial LLC in Huntington Beach, Calif. "The client was hurting and the advisor needed to make a compensation adjustment."
The reason this didn't involve a larger number of advisors was the fact that the fees of so many other advisors are directly linked to the value of the client portfolio, she said.
"When the value of the portfolio went down, so did the fees they received," Zohlen explained. "So a portfolio going down 25 percent meant their compensation was down 25 percent as well."
Whoever helps you with your investments, or if you do them yourself, seek out low-cost investment vehicles, know your investment goals and don't do a lot of random buying and selling, she advised.
Fund fees are worth noting:
We live in a world of expanded communication and immediate financial information, but faraway places still give mutual fund companies opportunity to charge more.
"International funds charge the highest fees basically because they can get away with it," said Russel Kinnel, director of mutual fund research for Morningstar Inc. in Chicago. "People expect higher returns and think of international funds as more exotic, so the market is willing to bear a higher price."
Mutual funds follow what Kinnel calls "peer-based" pricing, which means they look at what is being charged by the 20 or so comparable funds to determine how much they will charge, he said.
"It's not really based on costs, but rather what their peers are charging," he said.
With mutual funds, pay attention to the annual expense ratio, Kinnel said. Stock funds are generally charging .80 percent of assets and anything less than that is a good deal, he said. Bond fund expense ratios should be less than that.
"In the past 10 years, we've seen a lot of money going into the Vanguard and American funds, two of the cheapest fund shops around," he observed. "Low-cost funds generally outperform, with the lower the cost the better the performance."
Even if you simply look for the best five- and 10-year returns in a fund category, most likely those will also be the funds with the lowest expenses, he said.
Credit card rates must be monitored closely:
They've gone up this year, jumping before the new rules and regulations of the Credit Card Act in February restricted rate increases on existing card balances.
The average consumer credit card rate is currently 16.70 percent nationwide (or about 2 percent higher than a year ago), according to IndexCreditCards.com. That's the highest nationwide average calculated since the survey's inception in 2005. However, customers with excellent credit are now seeing an average rate of 12.59 percent.
"With most cards offering variable rates that rise with federal interest rates, there is nowhere to go but up, as federal rates are still at an all-time low," IndexCreditCards.com stated in a recent report.
The average credit card late fee is about $34 and the average over-limit fee about $37.
Pay down debt, shop for lower-rate cards and do what you can to accelerate your debt payment because interest rates are only going to go up.
As far as good banking news, new legislation puts an end to some practices unfriendly to consumers, such as posting your excess payments to the lowest-rate balance first rather than the highest-rate balance, said McBride.
The downside is that it is going to be tougher to get credit if you have a spotty credit record or are under age 21, he said. Credit lines may be less generous for those with a good credit history and the cost of balance transfer fees and cash advances will be going up.
"Free checking is still available at banks," concluded McBride. "You can also shop around for the best deals in monthly service fees, per-check fees and transaction fees."
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Personal Finance - Keep Close Eye on Bank, Mutual Fund, Credit Card Fees
© Andrew Leckey