Financial Education

Types of fees: learn three and their purpose

There's no way to escape being charged different types of fees and taxes. So, the best solution is to understand them. How about three types?

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by Thais Daou

Published on 08/28/2021

Find out everything about the types of fees

Know what are the three types of fees. Source: Unsplash
Know what are the three types of fees. Source: Unsplash

We, citizens, are very familiar with a variety of types of fees and taxes. Some examples are trash collection fees, enrollment fees, and many others. However, not all fees are taxes.

This form of tax is only referred to as such when the government imposes and charges it. As a tax, the charge always assumes the existence of public activity. For example, one that a public authority initiates.

But we are not talking about the government today. Instead, we are talking about corporations and their prices. That is, a price that is charged for a certain service. So, when we say the word fees, we are referring to the funds usually raised to be used for that certain service.

They are required by the corporation because a direct service is being provided in exchange for these payments. Nevertheless, fees can either be mandatory or voluntary. So, summarizing, fees reimburse a corporation or a beneficiary for the cost of delivering a service.

As a result, it is important that you try to understand a number of strategies thoroughly in order to make good decision making when it comes to paying or not paying fees. Then, and only then, you will be able to tell which corporations and services are best for your own finances.

So, make sure to read this article, which outlines three types of fees that we have to deal with in our daily lives.

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What is the purpose of fees?

Why there are types of fees? Source: Unsplash
Why there are types of fees? Source: Unsplash

To better understand the purpose of fees, we have investigated some of the most typical costs you are likely to encounter.

When it comes to credit and account types of fees…

Such costs are determined by a bank, a service, by terms and conditions, and, who knows, also by local laws. For instance, a one-time service, such as an international transfer, can be charged a fee. On the other hand, flat-rate fees, in which all bank costs are charged at once, are also available.

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When it comes to loan types of fees…

Moreover, there are also loans and their types of fees. The costs charged on a loan are not all the same. In truth, fees vary a lot in terms of how they are applied, paid, and also how they affect the loan.

Talking about banks, they often charge for the services they provide in order to make a profit and cover operational costs. When a bank lends you money, it will charge you interest. There are fees associated with opening a deposit account, such as a checking or savings account.

Actually, even no-fee checking and savings accounts come with some costs! Therefore, it is critical to understand all of your bank’s costs, as well as how to decrease or remove as many as feasible. This way, you can immediately eliminate bank costs, registration fees, and any other fees associated with a corporation providing a private service (since we are not talking about taxes).

When you read this word, we mean, whenever you hear “fee”, we desire that you immediately understand its meaning, as well as understand the basic language that surrounds it and how it functions. We hope that we will help to clear up any confusion. After all, it all starts with a basic understanding of how banks and other organizations charge fees.

And, specifically about banks, well, their main reason for existing is to make money! So, if they can charge a few bucks here and there, they will. Why not, right? The majority of organizations that charge fees are businesses, and businesses are all about making money.

What are the three types of fees?

We want to help you understand the types of fees. Source: Unsplash
We want to help you understand the types of fees. Source: Unsplash

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1. Maintenance Fees

A maintenance fee is one of the most common banking fees that banks levy. It is an administration charge or cost incurred to pay the costs of establishing, maintaining, amending, or terminating an insurance policy.

Some charges, such as start or termination fees, may apply to all policyholders. In most cases, the maintenance charge is related to the current account and account transactions.

As a result, the customer and the banking institution will agree on service prices. While these types of fees are charged concerning services such as credit cards and bank accounts, banks and other institutions can also charge these fees concerning loans.

Therefore, moving to the topic of loans, we can say that maintenance fees are a means to charge borrowers a monthly cost only to keep the loan active. In addition, we take that it is kind of obvious that there is a lot that goes into keeping a loan in good standing.

There is always work to be done by the loan lenders. For example, it can be payments, interest deviations, or statements. Also, in most American states, authorities are only allowing between $ 1.00 and $ 3.50 for maintenance fees. So, the maximum amount allowed for a monthly maintenance cost is regulated by each state, depending on where you live.

2. Transaction Fees

The transaction charge will vary in price based on which service is chosen. Keep in mind that the cost is based on requests effectively paid.

A transaction fee is a type of fee that a corporation must pay each time a customer’s payment is processed. A transaction fee might be levied as a percentage of the transfer amount or as an additional fixed amount, depending on the payment processor your company uses.

Each payment option has its own manner of pricing for the service provided. So, you have the freedom to choose the one that best suits you.

Furthermore, there are also types of fees used by travel companies. In such cases, it means that the consumer is responsible for all travel management charges, whether direct or indirect.

To give you an example, for each service or transaction, the client pays the agency a certain price, which depends on how many transactions s/he makes. As a result, the agency is able to keep rates low while providing more comfort and convenience to its customers!

3. Amortizing Fees

Because there are several options for repaying a loan, numerous questions may emerge at this time. And amortizing fees means that, depending on the situation, you are allowed to reduce your debt by making regular payments and even receive a discount on your interest.

With the preceding notions in mind, it is possible to explain that amortizing a loan involves progressively paying off the entire debt. Those who apply for mortgages, for example, should focus on paying the monthly installments and amortizing them over time.

To purchase a home using real estate finance or to consolidate debt using a secured loan both ask for a lengthier repayment period.

Knowing all of the information above can help you to prevent suffering due to excessive costs. Especially when it comes to fee issues.

Banks, for instance, attempt to make it harder to use free services. So, to avoid selecting an incorrect product, we recommend evaluating what types of services you need and how frequently you use them. It might be costly to pay types of fees for something you don’t use or to be charged for overages.

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About the author

Thais Daou

Thais Daou holds an undergraduate degree in Languages — Translating and Interpreting from the São Judas Tadeu University. She has been translating, proofreading, and transcribing financial documents, as well as documents from other fields, for five years. And now she begins a new chapter in her career, writing about financial solutions in a simplified way, with a desire to spread this knowledge, which is so important.

Reviewed by

Aline Barbosa

Senior Editor

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