Australians wasting billions on unnecessary fees

Australians wasting billions on unnecessary fees

Australians are collectively pouring billions of dollars down the drain when it comes to bank fees, credit card use and home loans.

According to recent research from RateCity, they waste $5.2 billion every year on food alone — that’s $620 per household. That’s not to mention the hundreds of millions wasted on international travel fees and over one billion spent on account-keeping fees.

Anyone with a credit card or transaction account may need to rethink exactly what they’re spending their money on.

“Many of us are unnecessarily paying up to $120 a year just to hold a transaction account. Yet, there are dozens of transaction accounts that charge no ongoing fees — so there’s really no reason to be paying for your everyday banking,” said Peter Arnold, RateCity product director.

Money-hungry bank accounts

While many transaction accounts come with fees, that doesn’t necessarily make them better, Arnold explained.

“Paying a fee doesn’t necessarily equate to better service or increased features on your transaction account, so if you are forking out money for an everyday account then shop around, switch to a free account and pocket the difference.”

In fact, an everyday Australian who ditches the $120 per year in transaction account fees could reduce their overall home loan interest bill by close to $3400, paying off their loan three months early.

Expensive cash advances

Australians with credit cards often use the cash advance function to cover costs between paydays. 

But they’re throwing away billions in the process.

“It’s surprising to see that Australians are still wasting money using cash advances despite the huge costs involved. In the 12 months to May this year, we withdrew a whopping $10 billion cash from our credit cards,” noted Arnold.

In turn, Aussies are paying hefty interest from the date of withdrawal, and in many cases fees to access this money. Arnold suggested investigating personal loans with lower interest rates as a more wallet-friendly alternative.

Tardiness costs money

Homeowners could pay tens of thousands of dollars in additional interest and fees if they skip just one mortgage payment annually over a loan’s lifetime. 

That’s not to mention adding an extra two years onto the duration of their mortgage, according to RateCity research.

“If you know you will be short of money next payment you should call your lender immediately. They can suggest several financial hardship options such as switching to a cheaper loan, a rate discount or extending your loan term of interest only repayments,” Arnold suggested.

“If you can’t avoid missing a repayment, you should try to double your repayment the following month.”

It’s also prudent to have a buffer in place in case the official cash rate increases, in turn pushing up home loan interest rates. Income protection insurance could also be a smart idea.

There are many ways to save a bit here and there, each day. Being conscious about how much you are wasting in fees in charges is the first step.  

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Learn more about home loans

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.