It seems that nearly every day, a new and exciting financial product comes to the market designed to make money management easier and more rewarding. But while these products all claim they'll bring nearly wondrous results, the marketing hype can hide a less-than-attractive reality. Customers will pay for the privilege of using them, and the costs may far outweigh the rewards.
1. Traveler's checks
Traveler's checks are becoming a charming anachronism in a world of globally linked ATMs and credit cards designed for international use. Fees for purchasing traveler's checks vary, and some institutions may issue them for free with the purchase of travel services.
Traveler's checks can be replaced if they are lost or stolen, but there are more negatives than positives to buying and using them. First, it can be difficult to find vendors that accept them, especially internationally in non-urban areas. And perhaps even more than out-of-place clothing or an inability to speak the language, traveler's checks immediately identify tourists to potential pickpockets and thieves.
ATMs are common internationally, with many offering language options including English.
There are fees for using an ATM card internationally, but just as with credit cards, the fees vary widely by issuer. At the low end, they can cost less than using a non-network ATM much closer to home.
2. Prepaid credit cardsPrepaid is the cool new kid in the credit world, if the numerous ads are to believed. But when everyone from banks to celebrities with no banking acumen want in on the action, it's best to look out for the warning signs. These cards are a high-profit item for issuers, and a money drain for customers. Fees range from slightly higher than reasonable to downright exorbitant.
Prepaid cards can be handy in certain very specific circumstances, like when you're traveling or as a second, emergency card. And some offer a few rewards, like roadside assistance, emergency translation assistance abroad, or purchase protection. But don't be fooled: Prepaid plastic is definitely not appropriate for daily use. For individuals with average or better credit, smarter options abound, namely a good old-fashioned no-fee credit card. Or a debit card. Or cash.
3. Payday loansFor individuals in a short-term money bind, a payday loan might look like a lifesaver. There's no credit check required, funds are direct-deposited into your bank account, and the lending criteria are fairly unrestrictive. Payday loaning institutions advertise that they can help customers avoid late fees and bounced check fees. But with their own fees ranging from $25 to $30 for each $100 borrowed, a late payment fee or a bounced check might be a less costly option.
Loans can be applied for and received entirely online, but a look at many of the websites offering the loans inspires something other than confidence. Conducting any sort of banking over the Internet has inherent risks, but several of the websites advertising payday loans look as though they were designed in the days before widespread awareness of the identity theft epidemic, and the resulting precautions and additional security added to online financial transactions.
4. Credit cards with annual fees
Most people won't ever want, need, or qualify for the invitation-only American Express (AXP) "black card" (officially called Centurion), with its first-year fee of $7,500. Nor will many qualify for the Visa (V) Black with its $495-a-year price tag. But annual-fee credit cards offering a wide range of additional services and rewards are widely available.
Are they worth it? Some fee-based cards, like Chase (JPM) Sapphire Preferred, give cardholders platinum-level benefits, such as a customer service line that's always answered by an actual person, or a waiver of international transaction fees. Those fees can add up, and not paying them can more than offset the $95 annual cost.
But for individuals with more basic credit card needs, no-annual-fee cards are just as plentiful. And, in an effort to be competitive in an increasingly cluttered market, many of those cards offer rewards that are more relevant to the average consumer.
All credit cards are designed to make a profit from their holders -- whether through annual fees, interest rates, fees for late payments or overages -- or all of the above. Avoiding an annual fee is just the beginning. By understanding how and when you'll be charged as you charge, you can avoid surprises and build healthy credit -- which is its own reward.
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