Since this writing, SmartyPig has removed many of the fees associated with their accounts and so is not as bad as this post makes them out to be.

If you read any other personal finance blogs, you probably have seen a lot of posts about this new type of savings called SmartyPig, run by West Bank. [Consumerism Commentary, Moolanomy, and Wise Bread, just to name a few] They bill themselves as a different kind of bank account and they’re sporting a pretty healthy 4.30% APY savings account, until you realize that they’re charging you some ridiculous fees!

Here are the fees from their Terms & Conditions:

Contributing funds to a public account via ACH, Electronic Check and Credit/Debit Card, a $4.95 processing fee per contribution will be charged to the purchaser.

Purchasing a physical or electronic gift card via ACH, Electronic Check and Credit/Debit Card, a $4.95 processing fee per card will be charged to the purchaser.

Unsuccessful attempt of transfer of funds, $25.00 per occurrence will be charged and debited to the customers ACH bank account.

Replacement of a lost, stolen or discarded SmartyPig MasterCard® Debit Card is $20.

Requesting funds on a check in lieu of placing funds from a Savings Goal on the SmartyPig MasterCard® Debit Card or Retail Gift Card will incur a $25 processing fee. To complete this transaction, the Primary Account Holder must contact SmartyPig Customer Support. Not available to minors. Waived when required by law.

Overdrawn accounts will be charged a $27 fee per overdrawn item

I’m not going to rehash the point and purpose behind SmartyPig, for that you can hit up one of the posts above, but to the untrained it eye it sounds a whole lot like you’re paying a lot for the opportunity ($5 each time someone contributes, how does that motivate saving?) to help someone save. Not only that, but the end product isn’t even an ACH deposit into the saver’s account, it’s a debit or gift card (minus $4.95)! (if you want an ACH transfer of funds, that’s $25 please)

This seems like a raw deal, is anyone else seeing this differently? (though do enter those contests for a free $100)

Back in the days of personal checks and monthly bills, “doing the bills” was an arduous task that took hours and hours. Back in the days of check registers and balancing a checkbook, “doing the bills” was like accounting-lite. With the advent of online checking and electronic bill payment systems, there isn’t any logical reason why you should be spending an hour or two each month dealing with bills. By setting up your bill payment details and conducting your transactions entirely online, you can add months to your life.

Thank about this… imagine you spend three hours a month dealing with bills. Three hours a month equates to a day and a half a year. That’s basically one weekend a year (unless you do your bills at work!) you lose because you are “doing the bills.” Now consider that you’ll be doing bills for most of your adult life. If you figure you live past 75, you’re talking about over a year’s worth of weekends lost just to “do the bills.” I think that when you put it in those terms, it’s quite easy to make the jump and trust online bill payment as a means to recapture your weekends.

Personally, I auto-pay as much as I can. My cell phone bill and my cable/internet bill are charged to a credit card while my mortgage and my water bill are all automatically debited from my checking account. I’m implicitly trust those entities because they’re established organizations (Sprint, Verizon, BB&T and my county government) that I would trust my banking information to. If I didn’t, sending them a check would be just as dangerous as giving them the electronic account details (I lose nothing privacy-wise by giving that information to them versus a personal check).

If I could auto-pay the balance of my credit cards, I would. I can’t do that because the credit card company doesn’t offer it because that would mean I’d never miss a payment. I’d never miss a payment and I’d always pay off in full, something I do anyway but at least this way there’s a probability I’ll miss it (and I have in the past, I’ve missed one payment but had the fee waived).

Pay day loan shops (and cash checking and other similar short term loan shops) are often singled out as places that prey on consumers in a tight spot. While I don’t dispute that, I want to point out other places that also prey on consumers in a tight spot that don’t often get the spotlight.

Pay Day Loans Are Bad

Don’t get me wrong, pay day loans are horrible products for consumers because of their high fees, high interest rates, and their propensity to become financial sinkholes. It’s the financial version of someone going in for a routine cavity filling and coming out with a lobotomy. You just need a little extra help to get you to the next pay day but end up paying for years. According to this warning by the FTC, they give an example in which “the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times [42 calendar days], the finance charge would climb to $60 to borrow $100.” $15 to start and 391% APR is horrible but let’s compare to some of these other products.

Refund Anticipation Loans

Refund anticipation loans, tax rebate loans, assisted refund loans, etc. are horrible horrible, don’t ever get a refund anticipation loan. These products are often highlighted as preying on consumers but I felt they should be mentioned anyway. Given the fervor over pay day loans, you’d think a loan with a $30 activation fee, $20 check processing fee, and a 36% APR would get a little more heat than it does. $50 to start plus 36% APR on funds that are guaranteed (if the tax preparer does their job right) by the IRS… seems a little rougher than the pay day loans, which are loans on funds that are not guaranteed.

Bank Fees

According to Bankrate’s 2007 bank study, bank fees are on the rise. Big time. A bounced check will cost you $28.23, average ATM surcharge will run you $1.78, and the average monthly service fee on a checking account was $11.72 (don’t ever pay a fee for a checking account). You’d think that they were lending you money given those fee values! I can understand the headache of a bounced check but let’s get real here, bounced checks never come alone. In fact, considering banks withdraw the largest amounts first, you’re more likely to see multiple bounces than a single bounce.

Credit Card Fees

Again, credit card companies have come under heat too but it still bears highlighting that they’re practices are closer to pay day loans than they are to the Fed. If you make your payment late, most places will charge you somewhere between $20 and $30, with the bias towards $30. Interest rates? High, plus companies have been mailing out letters notifying people that their rates have gone up for no reason. I’ll leave it at that since the credit card industry does take a lot of heat for their practices.

So as you can see, pay day loans are horrible but there are a lot of other horrible and more mainstream products out there that simply don’t get the same exposure. Bouncing a check is like missing a payment which is like taking out a pay day loan, in terms of cost, but at least with a pay day loan you get something out of it (a horrible horrible loan!).

I just made a trip to China and one of the interesting things I learned before I left was that a credit card will often tack on a foreign currency transaction fee if you use your card abroad - this fee is tacked onto the cost of the purchase and is used to cover the foreign currency exchange, in theory. No matter what the reason, the fee still exists and it certainly would be helpful to know which card issuer charges the most and which charges the least right? So, check out the table below:

Visa and Mastercard automatically charge the card issuer 1% for the foreign currency transaction itself so a lot of the Visa/Mastercard cards will pass that onto the end user (which is included in the number above). Capital One is the lone exception, eating the fee, and Discover and American Express obviously aren’t on that network so don’t have that extra overhead.

It looks like Capital One and Discover are the best for this though I’d argue that you likely want to get a Capital One card because Discover isn’t as widely accepted overseas.

In this second installment of my home buying autopsy series, I’ll take a look back at my dealings with my lender, Equitable Trust Mortgage. I knew that I could negotiate some of the fees with my lender but I felt pressure from the sellers to close the sale within two weeks, which by all accounts is very difficult to do. Since my only benchmark at the time were the closing costs associated with a loan from LendingTree and Equitable Trust’s closing costs were significantly lower ($500 vs. $995), I had no reason to think about shopping around.

Everything in life is negotiable, including the closing costs related to a mortgage. All the 800-level fees are negotiable because the lender gets to set them at whatever they believe the market will bear. The following is a list of the 800-level items:
800. Items Payable In Connection with Loan
801. Loan Origination Fee
802. Loan Discount
803. Appraisal Fee
804. Credit Report
805. Tax Service Fee
806. Document Preparation Fee
807. Flood Certification Fee to FDSI
808. Doc Prep to Equitable Trust Mortgage Corp

On both my first and second mortgages, the document prep fee to Equitable Trust was in the $250 range. In hindsight, I bet I could have negotiated this downward because there’s no reason why the preparation for the second mortgage would take as much time as the first one. It’s sort of like a quantity discount. None of the first six 800-level fees appeared on the second HUD, I would’ve immediately contested those because there’s no reason why you would need to appraise the house twice or get two credit reports.

As for the rates themselves, 5.75% and 7.5%, could’ve been negotiated downward I bet. I think I was hamstrung by the demands of the sellers (two week closing) and so I didn’t feel I had much to negotiate with especially when the lender knew that I only had two weeks. Even so, perhaps I could have negotiated a quarter point lower on both and saved a few bucks that way.

Ultimately the moral is you should always ask and you should never feel as though you have to go with any particular lender. The money they give you is just as green as the next guy; it’s simply a matter of how much they’ll want to charge you for it. It’s easy to overlook these nickel and dime charges when you’re dropping a few hundred thousand on a home, but these fees come straight out of your pocket. All the saving in the world in anticipation of a home can be wiped out by not paying careful attention to these fees and not contesting or negotiating when you can.

“Woah! What are you saying?” you must be saying to yourself. Do I really think that the $31 fee per overdraft charged by PNC Bank is a good thing? What about the advice I gave about asking for a fee or charge by waived by a banking institution? I don’t think it’s a good thing and I still do think you should ask to have fees nixed, but if you give me a chance to explain what the title means I promise it’ll be worth it.

If you read the story about “poor” Chris Keeley, you’ll learn something your parents tried to teach you when you were really young. I want to make the analogy of a horrible fee ($31/overdraft is excessive, so is allowing him to overdraft seven times) to a hot stove. When your mother says “Don’t touch that stove John/Jane, it’s hot and you’ll burn yourself,” you may or may not have listened. But if you touched it, you were burned, and you never touched the stove again. I think the same can be said for these ridiculous fees.

It’s been shown that Americans, in general, don’t save enough money, are up to their eyeballs in debt, and are generally financially irresponsible. I feel that these high fees and penalty charges is nature’s way of teaching you that you shouldn’t touch the hot stove and that you shouldn’t eat so many Big Macs.

Here are a few examples of what I mean:
Overdraft Charges: Listen… Keeley should have known how much was left in his account and he shouldn’t have used the debit card in the first place! Why not use a credit card and at least get a piddly 1% reward for it? You get no advantage from a debit card. But let’s extend Overdraft Charges to include Over-The-Limit Charges too. You should know roughly how much credit card debt is on each card - or you have too many cards or have overspent. It’s as simple as that.
High Finance Charges for Cash Advances: Every credit I know of charges you for taking out cash with your credit card. The answer? Don’t use your credit card for cash advances!
ATM Charges: Are you telling me you can’t plan far enough ahead to hit up an ATM with your bank’s name on it? If you have a major bank, you have ZERO excuses. If you have a smaller bank, you at least can lean on the fact that there are fewer ATMs but you still can probably plan your finances enough in advance to visit your ATMs!
Late Payment: Now, some banks are insidious and they change the date due each month. But for those of you without that excuse, how could you not pay your bill on time???

Of course, as I mentioned in the Late Payment example, some banks are evil cheats who are trying to scam you. When it comes to those banks, just cancel your card and get another one… let your business do the talking. I think people need to show some financial responsibility and instead of the media babying folks like Keeley, they should educate their readership and explain that he brought it upon himself. Quit using kid gloves on adults when it comes to finances and maybe they’ll grow up!

Agree? Disagree? Think I’m a lunatic? Let me know!