Written byFees are the explicit charges a provider applies for a financial product or service, separate from interest and covering access, administration or transactions.
Also known as: fee
Key points
- For a consumer loan, the comparison rate folds interest and most fees into one number; business and commercial facilities do not carry one.
- A low headline rate with high establishment and ongoing fees can cost more than a slightly higher rate with low fees.
- Providers must set fees out clearly in the product disclosure statement, the loan contract, fee schedules and account terms.
- ASIC sets disclosure expectations, and an unresolved fee complaint can go to AFCA after the provider's own dispute process.
Common types of fee
Account keeping or service fees are charged for maintaining an account, and many are waived when a balance or activity condition is met. Establishment and application fees are one-off charges for setting up a loan, a lease or a merchant facility. Transaction fees apply each time something happens: an ATM withdrawal, an international transfer, a card payment.
Then there are the ones that only bite when something goes wrong, such as late payment and dishonour fees on a missed direct debit. Brokerage and platform fees apply to trades, management fees and expense ratios come out of invested balances, and government or statutory charges cover lodgement and licensing.
How fees are worked out
Four structures cover most of them. A fixed fee is a set dollar amount per period, such as ten dollars a month, which annualises to twelve times that. A percentage fee takes a proportion of an amount, most often funds under management, so the dollar cost grows as the balance grows.
A per-transaction fee is charged each time you do something, so your own habits decide the total. A tiered or conditional fee changes with your balance or activity, and is often waived entirely once you meet the condition. Percentage fees are commonly charged pro rata daily or monthly rather than in one hit.
Fees, interest and total cost
Fees and interest are different things. Interest is the cost of borrowing money, expressed as a rate and accruing over time, while fees are charges for a service. Charges is the broader word and takes in both, plus penalties and statutory imposts.
Small recurring amounts add up: an eight dollar monthly account fee comes to close to five hundred dollars over five years, and money spent on fees is money that is not earning. On investments, a higher management expense ratio quietly reduces compounding, and the gap between a low and a high ratio can be substantial over a decade.
Disclosure and disputing a fee
Fee information lives in the product disclosure statement for funds and superannuation, the loan contract and comparison rate table for credit products, the published fee schedule for accounts and cards, and your periodic statements. Regulators expect ongoing, establishment, exit and performance fees to be set out plainly.
If you think a fee is wrong, start with the contract to confirm what was agreed, then ask the provider to explain it and keep a record of dates, names and reference numbers. If that goes nowhere, use the internal dispute resolution process, and escalate to AFCA if it is still unresolved.
Not to be confused with
- Interest
- interest is the cost of borrowing over time, not a charge for a service
Frequently asked questions
Are bank fees tax deductible?
Fees on personal accounts are generally not deductible. Fees on a business account may be claimable as a business expense. It depends on the purpose the account serves, so check with your accountant or the ATO before you claim anything.
What is the difference between an establishment fee and an ongoing fee?
An establishment fee is a one-off charge for setting the product up, paid at the start. An ongoing fee is recurring, charged monthly or annually for maintaining the product. Both should appear in the fee schedule, and both belong in your comparison.
How do investment management fees affect returns?
They come off the return before it reaches you, and because they are charged on the balance every year they reduce compounding as well. Over a long horizon the difference between a low and a high expense ratio can be considerable.
What is a comparison rate and when should I use it?
A comparison rate combines the interest rate with most fees on a consumer credit product into a single percentage, so different offers can be lined up. Business and commercial facilities do not carry one, so compare total cost instead. Use it as a starting point, then read the full fee schedule.
Can I get a fee refunded?
If a fee was charged in error, or was never disclosed, ask the provider for a refund and keep a record of the request. If they refuse, use the internal dispute resolution process, then take it to AFCA if it stays unresolved.
Related terms
Comparison rate
A comparison rate is a single annual percentage that combines a loan's interest rate with most upfront and ongoing fees to show its ongoing cost more clearly.
Read definitionInterest
Interest is the price of using money: what a borrower pays on a loan, or a saver earns on a deposit, expressed as a percentage rate on the principal.
Read definitionRate
A rate is a ratio or charge expressed against a unit, commonly per year, that measures cost, return or proportion; in finance it usually means an interest rate.
Read definitionProduct disclosure statement (PDS)
A product disclosure statement (PDS) is the document a product issuer must give a retail customer before they buy a financial product, setting out its features, risks, fees and costs.
Read definitionPenalty interest
Penalty interest is interest charged on an overdue amount by a revenue office, court or creditor to compensate for late payment and deter delay.
Read definitionTermination fee
A termination fee is a contractual charge for ending an agreement before its agreed end date, or for triggering a contract exit event.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.