Over the past week or so, I couldn’t help but notice that there’s been a cluster of news reporting around fees. What I found interesting is that two industries’ fees keep going up and up… and the third industries’ fees have gone to zero. Specifically, ATM and cable company fees continue to rise, while brokerage trading fees are disappearing.
As consumers of these services, being aware of these trends can help us make wiser financial decisions. Of course, it’s not always clear what’s going on behind the scenes, so let’s take a look at each in more detail.
ATM Fees Keep Rising
ATM fees have reached a new all-time high. According to this this USA Today article, the average cost of an ATM withdrawal is $4.72. That’s crazy.
I haven’t been following ATM fees too much because, as the article notes, fewer people are using cash nowadays. My bank, USAA, reimburses us for ATM fees since they don’t have a network of their own. However, for a significant percentage of people, this can be a pretty big hit. That’s why I recommend having a bank that reimburses some or all of the ATM fees if at all possible.
Cable Companies Hide Increasing Fees from Consumers
The headline from Ars Technica was shocking, Cable companies use hidden fees to raise prices 24% a month. Or maybe it’s not shocking since we are talking about the cable industry here. I’ve written about Cox’s banana pants pricing, anti-competitive behavior, and shady pricing tricks.
I don’t mean to single out Cox, Comcast wasn’t any better when I had them as a cable service. Consumer satisfaction surveys repeated show that people hate their cable provider. The system was designed to eliminate competition, so most consumers must accept whatever pricing and terms they can get if they want high-speed internet.
I’ll now step off that soapbox and get back to the news of the 24% increase a month. The news mostly comes down to disclosure, but there’s some interesting fees in there too. For the disclosure part, if a company sells you on a service for $99 it should be $99. If there are government taxes involved, they could clearly state exactly what those are up-front in the advertisement. It shouldn’t be, “$99, plus fees that happen to be ~25% more.”
The interesting fees that I mentioned above are not necessarily government fees. For example there’s broadcast TV fees, which is what you pay to watch NBC, ABC, CBS, etc. that you could get for free with antennas. This is a touchy subject for me. I don’t think I should have to pay for something free just because of a technology hack.
Another fee mentioned is the regional sports fees. I watch a lot of regional sports, so I don’t mind paying for it, but they used to be part of the cable package. For people who don’t watch regional sports this is just wasted money. An easy solution would be to make it a package you can optionally buy. However, why give people the choice when you can just charge them all?
It’s worth reading the full Consumer Reports PDF here.
Brokerage Fees Go Zero
In the last couple of weeks, a group of brokerages have eliminated fees for trading stocks completely. It seems like it started with Interactive Brokers Group, but I’m not familiar with them. The big news was Schwab going commission free. TD Ameritrade and E*Trade followed suit. Then Ally Invest joined the party. Literally hours ago (as I write this) Fidelity decided they’d go commission free too.
I’m old enough to remember when a stock trade could cost hundreds of dollars. Typically it was done over a phone call (gasp!) with a stock broker. You had to deal with messy fractions. With the expansion of the internet in the mid-late 1990s, E*Trade and other brokerages brought stock trading to the masses with commissions that ranged from around $10-15 a trade.
I feel this movement to commission-free trades is another revolution. I hope that it encourages more people to invest. Some people are very fee adverse (*raises hand*) and this removes that. It’s also one less thing to explain to someone new to investing.
Part of the reason of the drop to zero commission fees is the success that Robinhood has had. It’s hard to get someone to pay for something when someone else is giving it away free. That’s specifically why I opened a Robinhood account for my kids years ago. As we’ve learned in other areas of technology, something free sometimes costs you in other ways.
Consumer Reports highlights a couple of the catches:
- They are trying to get new customers to sell them products with higher fees. That’s something to be aware of.
- You may not earn a good interest rate on the spare cash in your account. The brokerages can use all that money and earn more interest. The good news is that with zero commissions, you could invest almost all the extra cash into a very conservative investment like Vanguard Total Bond Market ETF (NASDAQ: BND) paying a 2.5% yield (or interest rate for practical purposes). That’s what I’ll be doing.
I don’t mind these catches at all since I can control both cases well.
I find it interesting how all these fees are trending. The cable company fees are going up because of a lack of competition (among other things). The brokerage fees are going down because of fierce competition. This isn’t a surprise, but the contrast of the two industries makes it clear that regulation matters greatly.
The outlier is the ATM fees. They are going up because fewer people are using cash. It seems like that would mean that they have to physically fill the machine with cash less often. That’s logically what the fees should go towards. If that’s the case, the fees shouldn’t have to increase. I suppose the fees should also cover the rent for the physical space they take up which is a fixed cost.
The movement of these fees have been gradual over time. If not for all the news coming out at the same time, I wonder if I wouldn’t have even noticed it? Sometimes, it’s helpful to step back and look at something fresh and think about how we got to where we are.
I always told my kids that my first requirement for a bank is that I pay them nothing, then I consider how much they pay me. One ATM fee(or any other) will eat up any interest you earn, maybe for the year.
My daughter works for a regional bank in Texas, and I find it interesting that one of their customers takes out $200k/week to fill privately owned ATM’s they have around town. At $5/fee per transaction somebody is making some money.
Lazy Man says
Ohh, I need to get into the private ATM business. That sounds great. When I first started blogging, there was a candy machine hustle of passive income. Just fill up the candy machine once in a awhile and collect the cash.
We happened to run into the person at the Dallas Farmer’s Market while he was refilling the machine. Had a guy with him, no uniform, but you could tell his hand was on a gun. That’s the only drawback I guess.
Vending machines were big back in the late 80’s(well, that was first time I heard of buying them). Wish I had bought a few.
Caroline at Costa Rica FIRE says
I always check my bills so I can see they’re correct and still within the range I want to pay for a service, but I don’t sweat every junk fee b/c there are just so many of them. Cell phones are another example, like your cable company. One benefit of achieving FI is you have the bandwidth to absorb fees as a cost of doing business (of course, more fees in one area means you have to diminish spending in another area unless you have unlimited funds!).
Lazy Man says
Yes, I care less about fees now than I used to. I care more if they are recurring though. I want to avoid those whenever I can.
Mrs. RB40 was wondering if Robinhood will survive this transition. If all the brokerages go to no fee, what can Robinhood offer? I think it’s a good development for young investors. It’s so much easier to invest in mutual funds now with no fee.
Lazy Man says
I read that Goldman may be interested in buying Robinhood. If not Robinhood has raised a lot of money giving them some time to figure out exactly how they are going to make money. Maybe they’re already making money through other means that I am not aware of. I’m not optimistic about their long term prospects though. It will be interesting to see how it all plays out.
Dragon Guy says
I hate the way we have taxes and fees as extras in this country. It is so much better when I travel internationally and something that is listed as 10 Euros will still cost 10 Euros when I go to pay for it. Seems like telecommunication companies are the worst in the US, but I even find it annoying with food purchases. No the dollar menu really isn’t a dollar menu when you add taxes!