Surprising Bank Card Fees

John Smith sympathized with his co-worker. "George, don't take it so personal. I just got a letter from one of my gold cards saying that they were going to start charging interest from the day that an item was purchased. Even if I paid my bill on time there would be some interest due. One quick phone call closed that account!"

George set his lunch tray down. "Look, I've had this card for over ten years. Paid every bill on time. Never late. Sue and I always made it a point to pay off the entire balance every month. That should make us a good customer, right?"

"Well, not quite, Mr. Ontime Payment!" Tony was drawn by the conversation. "I've been reading where the banks not only want to make money on the stores, but they also want to make money on you and me, too. But you guys aren't willing to play the game right. When you pay off the entire balance they don't make any money charging interest. That's strike one. If you don't make a lot of purchases they can't make money on the store. That's strike two. And it costs them to process your small check each month. Strike three! You're out!"

John did have to agree that Tony usually found a way to bring a smile to their lunch table. "I must have read the same article. Was that the one that said they sent out 2.4 billion credit card offers last year?"

"Yeah, I think so. What amazed me was how greedy some of their new fees were. It used to be that they were happy to charge you 18% or so for borrowing money from them. You could avoid that by paying your bill. But now you really need to watch them so they don't slip something by. Take that deal on the extended warrantees."

"What's that about?" George was a regular user of a card that promised extra warrantees. "That sounds like a great deal to me. It's insurance I don't pay for."

"Well, maybe. But are you absolutely sure that you're still insured?" John went on to explain that bank card companies had been issuing cards that screamed about the special warrantee coverage they offered. But after a few months the same company would add a small notice with all the other things that are included with your bill. Most people don't even bother to read them before they hit the trash. But if you did read them you'd find that the extra warrantees were being dropped.

George nearly dropped the salt shaker when he heard that. "I better call them and see if I really still have coverage. I never read that stuff that comes with the bills. I figure it's all just junk ads."

"That's just what they're counting on. Unless you try to collect on the insurance you'll never even notice that it's been canceled. I'm surprised it's legal to do that." Tony's tone made it clear that he thought that the laws should be changed.

"What I found interesting was what they were doing with accounts that are late or not making the minimum payments." John was thinking that Dave, another one of their lunch gang, shouldn't have gone out for lunch today. He carried a hefty balance on his many cards. "Late fees have just about doubled in the last seven years. They average $15 now. And on top of that many bank cards are starting to charge you a higher rate of interest if you're late or over your credit limit. So the lower rate you read about when you got the card isn't the interest rate that you're being charged. It's going to make it really tough for people who aren't real careful about their bills."

"Hey, they'll get you any way they can. Meg and I were about to transfer a small balance we were carrying. By going to the new card we'd get a lower rate of interest. But just before I was about to pull the trigger I noticed that the new card treated the transfer as a cash advance. That made it subject to a 2% surcharge. The lower interest rate was a scam. We wouldn't have saved anything." Tony shook his head as he recalled how close he had come to being fooled.

Just then John spotted Dave. "Hey, I thought that you went out today."

Take the Next Step

• Use a Credit Card Calculator to find out:
  The true cost of paying the minimum
  - What will it take to pay off my current balance?
  - Which is better: Cash Back or Low Interest Card?
  - Which is better: Airlines or Low Interest Card?
  - How much could I save by transferring my balances?

Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. You can also follow Gary on Twitter or on his blog.

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