For most people the transactions in the Fees & Charges category relate to the fees, charges and interest paid on financial products. The key tactics to minimise your spend in this category are:
- Pay off your debts – financial debt products generate a lot of the fees, charges and interest we see in this category
- Switch to cheaper financial products – many products will have no, or lower fees and charges and lower interest
- Change the way you use your financial products to avoid fees and charges – many fees and charges relate to things you do, some of which can be avoided
Service Fees & Charges
The vast majority of Service Fees & Charges transactions are fees and charges on financial or banking products. These fees and charges include things like:
- International transaction fees
- Missed payment fees
- Account keeping fees
- ATM withdrawal fees
- Overdrawn fees
- Dishonour fees
To minimise these transactions you should:
Look for products that don’t charge fees – the market for financial products is pretty competitive and there are usually products available that don’t charge fees. Large, incumbent providers rely on customer apathy to continue charging fees. It is also possible you have a financial product with fees and charges that don’t really suit your needs. Examples include a credit card that charges foreign currency transaction fees and foreign currency conversion fees if you often shop online using overseas webs sites. Using some cards will rack up a huge amount of fees. Using other cards will incur no fees and charges.
The MoneyBrilliant Optimise My Banking feature will automatically review how you use your financial products and analyse the interest and fees and charges for virtually all the other products available in the market and let you know the 6 cheapest options (or the 6 alternative products that would earn you the most). You don’t even need to do the analysis and research to find the products and services that will save you the most money. You can learn more about Optimise My Banking in this FAQ document.
Change the way you use your financial products to minimise fees and charges. This takes a bit of work, but there are some obvious fees and charges that are easily avoided. In 2017 CommBank, NAB, Westpac and ANZ all removed the charging of fees on other banks cards used at their ATMs. It became much easier to avoid ATM fees. However, a number of ATMs still charge fees. These include Redi, BOQ, Bankwest ATMs inside 7/11 stores and BCU. The easiest thing to do is to find an ATM that belongs to one of the Big 4 banks – or withdraw your cash at the grocery store when you do your shopping.
Minimising your spend on Interest Paid involves:
- Paying off your debt
- Switching to a product that has a lower interest rate
- Using an offset facility
- Consolidating your debt (read below and do your research before you use this approach)
Tactics to pay of your debt include making additional or larger repayments and/or increasing your payment frequency.
By increasing your payments every cent over your required payment is paying more of the amount you owe – and this means the balance is lower and the interest charge will be lower. Over time this effect starts to snowball. The more you pay off, the less the interest. The less the interest charge the more of the amount outstanding you pay off each time you make a payment. That means an even lower balance and more of the amount outstanding being paid off. If you get into this cycle it can be incredibly rewarding.
Making additional one off or adhoc repayments has a similar effect.
Increasing your payment frequency usually has a couple of benefits. First, if you increase your payment frequency, say from monthly to fortnightly, you pay off some of the balance 2 weeks earlier each time you make a payment. Paying off even a small part of the balance 2 weeks earlier means a slightly lower interest charge each time. A slightly lower interest charge means more of your payment goes toward paying off your balance. It also means you make slightly more payments. If for example you are paying $2,000 each month, you are paying $24,000 a year. If you switch to fortnightly payments of $1,000 you will end up making repayments of $26,000 during the year. So you’ll be making the payments a little earlier, which reduces the interest and you’ll be paying more off each year. Over time this will probably save you a lot of interest.
If you have a loan, particularly a mortgage, the most efficient way to bank is to use an offset account. an offset account is an account, with a positive balance that is linked to your loan account, with a negative balance. The positive balance of your offset account is used to “offset” some of the negative balance of your loan account. Usually you pay interest only on the “net” balance of your loan account and your offset account. The other benefit of an offset account, over and above making additional payments discussed above, is the “cashflow effect”. To get the “cashflow” effect you arrange for all of your income to come into your offset account and incur as many of your regular expenses as possible on a credit card with an interest free period. Then you pay off the credit card, in full, every month, from your offset account. What this does is maximise the balance of your offset account and minimises the amount of your loan you will pay interest on each month. This approach can take a bit of discipline to implement, but it will make a difference to the interest you pay.
Finally, you could consider consolidating your debt to reduce the interest you pay. Debt consolidation generally involves rolling multiple debts, usually including high interest debt like credit card debt, into a new loan with a lower interest rate. It can be effective strategy, but it is also fraught with danger and requires extreme discipline. Read this information about debt consolidating on the ASIC MoneySmart website before you consider this option.
Often the easiest option convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar
You might also find our guide to negotiating useful in preparing for the discussion with your lender or credit card provider.
If you have a mortgage or other loans and you are suffering financial hardship you should also consider asking your lender for a break from repayments. You can read more about taking a break from repayments in this article.
If you are concerned about the financial impact of COVID-19 or you are facing the uncertainty of losing your job or having your income significantly reduced we can help. Sign up to MoneyBrilliant and we will give you access to a host of tools and features to help you organise your finances and make better decisions about your money. We’ll also give you tailored insights about the financial assistance available from governments and businesses to help you face the economic and financial challenges caused by the COVID-19 pandemic.
This summary has been prepared by MoneyBrilliant Pty Ltd (AFSL 492711, ACL 493068). The information in this summary is of a factual nature only. We are not suggesting or recommending that you take any particular course of action in relation to any financial product or service. It does not take into account your personal circumstances or objectives. If you need financial advice or taxation advice you should seek advice from a licensed financial adviser or tax agent. You may also be able to access additional information from the websites of the Australian Securities and Investment Commission (ASIC) and the relevant product providers.