What Is a Nominal Fee?
The term "nominal fee" is meant to suggest a small, affordable amount.
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Financial service providers market many different products as being available for nominal fees. A nominal fee is a payment or purchase price like any other fee. However, the use of the work "nominal" implies that the fee is small in comparison to the true value of what you can purchase with it.
Meaning
Any type of small fee or charge can be referred to as a nominal fee. There is no fixed definition of how much a nominal fee is. Nominal fees can be flat rates or percentages, which means they can cover a wide range of actual costs. Knowing how a specific nominal fee is calculated is especially important before committing to pay one.
Examples
Many services available for nominal fees are add-ons to already-purchased products. For example, you may sign up for a credit card with a bank and pay an annual fee. The bank may then offer you enhanced security protection or account access for a nominal fee, which will be added to the fees you've already agreed to. Nominal fees may also pay for insurances, faster processing of documents or other special services that some consumers are willing to pay for.
Other Uses
Nominal fees exist outside of financial service providers, though they always have a very similar meaning, For example, some wealthy executives collect very small salaries. A CEO who receives $1 per year (in addition to any amount of stock options and bonuses) may be said to receive a nominal fee for his work at the company. Likewise, a court settlement may use a nominal fee to assign wrongdoing to one party without adding the penalty of serious financial consequences.
Avoiding Confusion
Some common financial terms use the word nominal without referring to nominal fees. In the case of compounded interest, nominal interest refers to the amount of interest that an investor or depositor would earn if interest was not compounded. The nominal price of a loan is the difference between the total amount paid and the principal amount borrowed, expressed as a percentage. Neither nominal interest nor nominal loans mean the same thing as a nominal fee.