Definition of Nominal Fee

We see the term "nominal fee" used often when we are told we can protect our investment for a nominal fee to cover the cost of insurance or product protection, or when we are told we will be charged a nominal fee for the privilege of participating in a certain event or activity. To find out what a nominal fee really means however, we have to break down the definition of the term.

The word nominal comes from the Latin root for the word meaning "name." As a result, nominal generally relates to the concept of a name, or the concept of in name only. Nominal stock is stock that is assigned to an individual by name. A nominal leader of the country may be the country's leader in name even though a separate governing body exists outside of the leader's authority.

Nominal is used, in essence, to identify or acknowledge a particular instance, individual, service or item rather than quantify its true value. Governing authorities use the concept of a nominal fee to assess required payment for goods or services without the in-depth analysis required to accurately assign the true cost. Nominal damages or nominal values may be assessed in certain cases simply for the purpose of recognition, such as when nominal damages may be required in a court case where a defendant is found guilty, but no harm was suffered by the plaintiff.

Nominal fees are sometimes paid to acknowledge receipt of an item or service regardless of the value of such item or service. In some cases, it is only a matter of form. The fee paid may not accurately reflect the true value of the item being received. For the legal transfer of property to occur, a purchase and sale agreement must be shown for the real estate record. If a private donation of land is made to a city or state, the paperwork might show the city or state paid a nominal fee of $2 as a matter of form even though the land may be worth much more.

Some businesses may charge a nominal fee for certain services or goods regardless of the value. A condo complex might charge tenants a nominal fee of $20 per month for parking garage privileges even though the actual cost of other nearby parking garages may be $200 per month. An insurance company charges a nominal fee for insurance coverage even though the value of the items is much higher than the coverage fees.

A nominal fee is also sometimes used to signify a type of contract. A nominal fee as little as one dollar might be charged to mark an agreement between payer and payee for the exchange of goods or services. Nominal fees might be charged for equipment or space rental, and the fee may even be refunded following safe return of the equipment.