Banks looking at fees as way to boost revenue
Bank fees are rising fast, especially on the two accounts consumers use most for transactions – credit card accounts and checking accounts. Banks are desperate for any incremental revenue they can find, as credit costs remain elevated.
Credit card fees are rising quickly, as banks seek to get increases in before new regulations make such changes more difficult. That means higher over-limit fees if you charge more than your credit line and higher late fees if you don’t make a monthly payment in time. Many banks are also reintroducing annual fees on accounts that don’t generate enough income through charge volume or carrying balances. Don’t be surprised to see new monthly maintenance fees soon, too.
Most of us have gotten used to the idea of “free” checking with few fees, but that’s changing, too. “Free” checking has been profitable for banks because of stiff fees – often $30 to $40 – when customers overdraw their accounts. According to the FDIC, about one quarter of customers pay all these fees, essentially subsidizing the other three quarters. However, Washington may restrict banks’ ability to charge these fees, since they fall disproportionately on low-income or elderly customers who can least afford them.
These fees are a warning sign for investors. They risk driving off customers, so revenues may be at risk at the banks that depend most on these fees.
Ask the Fool
Q: What do you think of the following investing strategy? Follow and buy the stocks recommended in the Fool’s Rule Breakers newsletter. After one goes up four or five points, sell it and then buy again after it drops two to three points. These holding periods would be anywhere from two weeks to two months. What are the tax consequences? – D.H., online
A: Yikes. That looks like a recipe for trouble. Sure, some Rule Breakers recommendations have doubled or tripled in value – but only for those who hung on for many months, if not years. (Learn more at www.fool.com/shop/ newsletters.) Big fortunes tend to be made that way. After all, Warren Buffett has said his favorite holding period is “forever.” Remember too that some stocks surge strongly for a while without retreating – you’d lose out on a lot of gains if you were waiting on the sidelines for a dip in price.
Frequent trading will rack up lots of trading commissions for you. As for taxes, while gains from stocks held more than a year get a lower tax rate (15 percent for most of us), shorter-term gains are taxed at your ordinary income rate, which could top 30 percent. We’d much rather invest in companies we really believe in, aiming to hang on for years.
Q: When someone talks of taking profits, how is that done? – Varn, online
A: It involves selling all or part of your position in a holding that has appreciated. For example, if your stock in Scruffy’s Chicken Shack has tripled, you’re sitting on a nice gain, but it’s just a “paper” gain until you actually sell. So by selling shares, you take some or all of your profit.
My dumbest investment
All you people who’ve written in about your dumbest investment – you think you’ve suffered losses? Hahahahaha. Try beating my $207,000 loss in just two weeks!
I had invested in a stock and was down a huge amount. I was then stupid enough to listen to a broker who said, “You must sell, it’s going to crash, and we can work together to recover the loss on other shares.”
Well, the stock soon started to recover, and today I would be looking at only a $10,000 loss. The stock is still recovering. But what really stinks is that just after I bought, it went up by $74,000, but I didn’t sell – I got greedy and thought I’d wait to make $75,000, only that never happened. – K.B., online
The Fool responds: The broker was right in this regard: It can be smart to not wait to recover in a stock in which you no longer have confidence. Instead, you can move what’s left of your money into a more attractive stock and aim to make your money back there.