When it comes to finances, “fee” is a like a three-letter bad word, the complete opposite of what personal finance is supposed to be all about — saving money and not being penalized for it. If you’re on time with your loan or credit payments, and keep within the terms of your deposit requirements (like avoiding early CD withdrawals), why pay unnecessary fees that drain your bank account?
The simple answer is that there’s actually an upside to paying some banking fees — the ones that will benefit your finances in the long run. If you’ve been avoiding fees at all costs, take a look at these five that are worth the cost.
1. Checking Account Overdraft Protection
You walked into Starbucks for a latte, but logging into your checking account later that day, you discover that you paid $35 for it! What’s worse is that it’s not an error — you just didn’t have enough available money in your account to cover the purchase and got hit with an overdraft charge.
While you should never let your balance get that low, you should sign up for overdraft protection with your bank or credit union. Be prepared to pay a monthly overdraft protection fee — typically $10 to $12 — which can add up to over $120 per year; that said, it’s the lesser of two evils in this case, especially if it means never incurring another insufficient funds penalty.
Also remember that your banking provider is required by law to give you details on this option.
2. Credit Card Balance Transfer Fees
Credit card debt is no joke. Rack up too high of an outstanding balance and you could be paying it down forever, since the average card interest rate can climb well into the double digits. Opting for a balance transfer allows you to move your debt to another card; many card providers even let you pay off your balance interest free for a set period, typically one year to 18 months.
The catch is that you’ll need to pay a one-time balance transfer fee ranging, usually about 3 to 5 percent of your total balance. Example: $10,000 in credit card debt transferred to another card can trigger a 5-percent transfer fee of $500. It’s still cheaper than debt. Make the sacrifice, pay the fee, and stop spending years and years paying double-digit interest with no end in sight.
3. Credit Card Annual Fees
You’ve just been approved for a higher-end rewards card and you’ve got the money to back up your credit line. But you cringe at the thought of the annual fee attached to it. Mike Jelinek, a contributor to ClarkHoward.com, endorses the payment of annual fees on rewards cards, since the fee can pay itself off as a form of return.
“Paying an annual fee for a credit card typically means you’ll get more benefits. Whether or not it’s truly worth it comes down to your purchasing decisions and spending habits,” Jelinek wrote. ” In most cases, my research has shown that the annual fee is worth the extra rewards.”
Though the range is wide (anywhere from $25 to $450, depending on the card), paying the annual fee can be worth it, since it can offer benefits like travel insurance, airline points, reduced interest, extended warranties and loss protection.
4. Mortgage Discount Points
They call it fixed mortgage loan interest, but nothing is ever really fixed when there’s a potential discount involved. New homeowners can purchase points and receive about a 0.25% interest rate deduction for each point bought, according to the Dough Roller.
FOX Business notes that most mortgage points cost about 1 percent of the home’s loan amount; so, if your loan is for $100,000, one point costs $1,000 (for 0.25% reduced), two points for $2,000 (for 0.5% reduced) and so on.
5. Refinance Fees
There are several fees involved in the refinancing process, but the expenses are manageable if it means landing a newer, lower interest rate, fixed for the next 10 to 20 years. These costs can amount to several hundred dollars for application, origination, document prep, appraisal and title examination fees, among some others.
Not all fees are created equal. Not all fees are bad, either. First weigh the pros and cons and jot down a cost analysis to see if the expense is worth the reward. With careful consideration and budgeting of fees, you can find a way to pay your way to a better financial life.