21 May 2007

Dikkii's financial tips #3: How do I reduce my bank fees?

Welcome to Dikkii's financial tips.

This is a new series where I attempt to provide some sort of guidance to financial matters without breaching the Corporations Act by actually providing advice.

Today, we'll be looking some more at bank fees. Specifically, how to reduce them, if not avoid paying them outright.

I'm going to look specifically at deposit accounts, today. I'll do a feature on lending a little down the track, but for most of us, deposit accounts are what we start out with. In today's banking climate, it is quite appropriate that we look at deposit accounts separate to lending, because more and more people are getting their loans through mortgage brokers, and you may even end up with a loan from some organisation that doesn't even have deposit operations. Or isn't even a bank, credit union or building society, for that matter.

There are many different types of fees that you might come across in using deposit accounts. We're going to stick to the main ones. In the process, I might use terms for bank accounts that I introduced in Dikkiis financial tips #2: Why are there so many different bank accounts? and so if you get lost, please click back here for help.

So let's get started.

1. Transaction fees

For personal accounts, these are normally fees for any withdrawals that you might make.

It's interesting to note that banks reserve the right to start charging for deposits and anything else, but to do so on anything other than business accounts will be PR suicide for the first bank that tries to do this.

Transaction fees will normally be quite low for non-cash withdrawals, such as through internet and phone banking channels, a little bit higher for cash withdrawals made through ATMs or EFTPOS, a little higher again if they're through a cheque facility and then completely outrageously high if done over the counter of a bank.

The good thing about these, is that most transaction and cash management accounts appear to have a reasonable amount of "electronic" withdrawals built into them fee free - like about 15 or 20, and at some banks, you might get an unlimited supply of these. By electronic, I mean ATM, EFTPOS, internet and phone banking.

Do not accept anything less than 15 electronic withdrawals fee free on your transaction account. Go for unlimited if you can. After a few transfers and bill payments, you'll be wondering where your free transactions have ended up.

One thing important to note is that where you have any kind of direct debit arrangement in place out of your bank account, these will normally be factored into your electronic transactions total. Always check to see how direct debits are itemised in the fee scheme of things.

Be prepared to pay top dollar for cash withdrawals over the counter of a bank branch - I don't think that there's an account left that gives much in the way of exemptions for these. You can expect to pay up to $4.00 per over the counter withdrawal if you like getting your cash from a person.

Interestingly enough, online accounts don't charge transaction fees at all, as a rule. However, you can only generally withdraw out of them over the net or telephone, so this kinda makes sense. I would counsel against opening any kind of online account that charged transaction fees.

Anyway, the moral of the tale is that if you make withdrawals through your bank's network of ATMs or use the bank's phone or internet banking facilities, you will save on transaction fees. Avoid doing withdrawals over the counter or via cheque facilities.

2. Account keeping fees

This is a bitch of a fee introduced primarily to recognise the fact that accounts don't maintain themselves. Usually, these will only apply to things like transaction accounts or cash management accounts - ones where you'd expect to be quite a lot of activity.

Online accounts don't usually charge these fees - but you still need to use them with a transaction account which will.

People who will happily complain about this one strangely don't appear to mind that they'll be charged up to $50 per month for monthly land line fees, or other utilities, even though bank account keeping fees can start from as little as $2.50 per month and only go as high as $6.00 per month, usually.

These fees normally come with catches.

For example - a small account keeping fee on a transaction account may have written into the fine print that only "electronic" withdrawals are allowed, that is, only through ATMs, EFTPOS, internet and telephone banking. You would normally expect to pay hefty transaction fees if you do a withdrawal over the counter in a bank branch, or operate a cheque facility.

If these are even allowed. This blogger is aware of quite a few transaction accounts where over the counter withdrawals are expressly forbidden, except in the event that you close your account.

For larger account keeping fees, you can expect maybe up to a certain number of over the counter withdrawals being made available to you fee free - like, you know, maybe two - before being hit with transaction fees for these.

Be aware that some banks like to offer a deal whereby they will waive account keeping fees if you keep more than a minimum amount in the account. This is a con. You will not maintain the balance, and will therefore be charged.

Also the minimums are usually quite high, often in the region of $1,000 or more. Given that these accounts are normally transaction accounts which pay extremely small rates of interest - if any at all - you would be better off keeping any money that you are not using in an account that earns more interest. Avoid these kinds of deals - banks need to know that his sort of thing will not be tolerated.

Try to keep your account keeping fees to a minimum - why pay extra for the privilege of using over the counter facilities if you don't need them?

Lastly, if you are paying account keeping fees, try to reduce the number of accounts that you use. Having a separate account with a cheque facility that you rarely use is a luxury if you are paying two sets of account keeping fees. Given that most state governments in Australia have stopped charging debits tax, if you require a cheque facility so badly, have one added to your everyday transaction account. You'll have more of a clue about balances in there before you write cheques than a separate account, anyway.

3. Other bank access fees

I get asked about these fees all the time, usually from people who really should know better.

Case in point: My good buddy, whom we call "Bob" has his bank accounts with a small regional bank. As a result, he can never find an ATM of his bank's when he needs one. So he has to use other bank ATM's.

Bob could be being charged up to $3.00 per go at using a bank ATM network that his bank is not maintaining and, therefore, getting charged for using.

Bob: This sucks. Why should I get charged for this?
Me: Well, ATM networks don't just maintain themselves, you know. Why should you get free access to other bank ATMs, just because your bank isn't wealthy enough to build their own network properly?
Bob: I love my bank. They support the community.
Me: Well they're clearly not supporting your community, because in all the time that I've known you, you've never been able to find one of their ATMs.

What Bob doesn't get, is that if he wants convenience, he's going to have to trade in the "community" feel of his current provider for it. Knowing Bob, of course, he'll blame the big banks for this, and come up with some conspiracy theory that has it as a plot by the big players to wipe out the small ones. But I digress.

One thing to look out for with other bank ATM usage fees is that usually balance enquiries at other bank ATMs are often charged the same rate as a withdrawal. A great trick here is to try a withdrawal - if you have no money in your account, the withdrawal won't go through, you will get a printout showing your balance, and you (in most instances, but not all) won't get charged the non-bank ATM fee. Of course, you may end up doing a withdrawal that you didn't need to do.

My suggestion here is to take advantage of your phone banking if you just want a balance.

Another thing to look out for is that some banks will charge an electronic withdrawal fee, or have an other bank withdrawal count towards your fee free total for your electronic withdrawals, on top of getting stung for the other bank ATM fee. Ouch!

The moral of the tale is, steer clear of other bank ATMs, unless your bank has some kind of deal in place where you do not get charged for using certain other bank ATMs.

Also, cash out at EFTPOS terminals is a great way to get around using another banks ATMs. Planned well, EFTPOS is an excellent way of doing this.

4. International transactions

These can be quite pricey. I've used ATMs overseas and regretted it afterwards. Usually, you could be up for as much as $5.00 per withdrawal, so you need to make every one count. Avoiding small withdrawals is a really good suggestion.

5. Overdrawing fees and interest

Never overdraw your bank account. Borrow from family and friends if you have to and ensure that you've got enough in your account at the end of the month to cover fees.

Keep mental tabs on the transaction and other bank ATM fees you're clocking up, or keep a small notebook if you have to. You only have yourself to blame if you overdraw your account.

Most banks will let you get away with a few dollars before they start charging fees - but they won't let you get away with a debit balance for a moment before they start charging interest, sometimes up to 25% pa or more.

And never, ever enter into a direct debit arrangement if you don't know when it's going to come out of your account. This is just being irresponsible.

Overdraft facilities by prior arrangement will save you on fees - but it is rare that they'll save you on interest. My suggestion is to avoid these unless you have a good reason for needing one.

6. Fee exemptions and hints

Transaction fees can be avoided - go for an unlimited electronic transaction deal or better.

Account keeping fees can also be avoided. Most banks offer fee exemptions to customers who have their lending under the same roof. Also, relationship balances can assist here as well - one bank offers a deal whereby if you have $50,000 or more in a relationship total, you'll get your account keeping fees waived. Relationship balances is usually the absolute value of all banking balances - deposit and lending - that you have with a bank.

Another deal that some banks offer is to be a shareholder. One bank has a deal whereby if you own more than 500 shares in them, you'll get charged no account keeping or transaction fees. Nice.

Students usually enjoy fee free banking. Be warned, though. If you are a tertiary student, you will usually need to visit the bank just after the start of each calendar year to get your exemption extended for another year.

Pensioners often get to enjoy fee free banking.

Other bank ATM fees and international access fees can't usually be waived for anyone. One bank that I do know, however, doesn't have very large operations in the state where I live, so they're offering to waive all other bank ATM fees provided that you link one of their Visa debit cards to your account. That's pretty good.

One last thing - if you've been charged a fee that you think you shouldn't have been, get a bank staffer to explain it to you. If you're still not happy with their explanation, mention the words "Banking Ombudsman" and just see how fast they move in getting your fees reversed.

But anyway, that's the minefield that is bank fees, or at least a start to them.

Other fees do exist - banks these days exist to get fee income - but hopefully we've covered the basic ones.

You have to know what you're paying before you can go shopping around, but you stand to save a fortune once you do. Hopefully this post has helped you out.

Dikkii's financial tips index

Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. It's not even vaguely reasonable to consider this to be advice. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.


Dikkii said...

Well that was interesting.

I actually had to select "allow" to comments where it normally would default to this.

I haven't seen Blogger do this before.

beepbeepitsme said...

Off topic.

You bin tagged.

Blog Against Theocracy: National Day of Secularism May 26th

Dikkii said...


3 whole working days. I better get started, thanks beep.

Plonka said...

Dikkii: Me: Well, ATM networks don't just maintain themselves, you know.

Well, now's where my sordid and very nerdy past catches up with me.

A very nerdy point needs to be made here. A network is just a cable, nothing more and nothing less.

I was one of those that helped make POSI (the predecessor of EFTPOS) a reality in this country Dikkii, so I can speak with a little authority here. I'm afraid that it pretty much does. Unless some fool puts his backhoe through a cable of course, but that's a very rare occurrence. But Intelbank owns the cables and I doubt they'd see even 1% of the bank fees charged for the service they provide which admittedly, isn't much.

Even the machines (ATMs, POS systems, etc.) manage to be a hell of a lot more robust than you might give them credit for. Sure, they need to be filled and get the odd upgrade but the price charged is completely disproportionate to the service provided.

So apart from the conspiracy theory, I think Bob may have a point.

And never, ever enter into a direct debit arrangement if you don't know when it's going to come out of your account.

Isn't that illegal? It should be...

...to get your exemption extended for another year.

Calendar or financial? (damn I'm being picky tonight...;))

"Banking Ombudsman"

It's true, I can vouch for that...:)

Hopefully this post has helped you out.

It sure has Dikkii. We're in the process of making the decision to get everything under the one roof (loan/mortgage/joint and linked accounts), which sounds like it may be the right one...:)

Now that's out the way (sorry, it took me a couple of days to get through it), I have to go do research...:)

Dikkii said...

Hi Ted,

Maybe the cabling might maintain itself. I probably wasn't specific enough. ATMs cost money to buy, or to lease. Cabling doesn't lay itself.

Having been one of the bank clerks who looks after the ATMs, I can also tell you that there is 2 man-hours of cash counting required for filling and balancing an ATM each day, as well as another 2-4 man-hours required for weekly cash counting and balancing. This weekly task is kinda like doing an inventory in a shop. Except that the cash is your inventory.

Then, there is about 2 man-hours per week in responding to error messages, re-filling the paper roll whenever it runs out, replacing printer cartridges, etc.

Where deposits are taken by the machines, there is about 2 man-hours required per week in counting and processing the deposits, together with cleaning the deposit slot (because people think it's funny to chuck bananas and envelopes filled with dog poo in).

Finally, there is the bill for the paper, printer cartridges, cash cartridges (which break all too easily), new buttons (they have this habit of wearing out rather frequently) and security that has to be called every time the machines break down, if they don't have an isolated cash room behind them.

Multiply all of this across a big ATM network, add depreciation, and you've got a serious - if not really huge in the grand scheme of things - cash drain. Bob has a point about the hugeness of the fees - but if ATM networks were as cheap as what he thinks they are to put in, Bob would be able to access one of his banks' ATMs around every corner.

Isn't that illegal? It should be... [re direct debit dates]

Ted, you would be completely freaked out to know how many direct debits I saw various branch managers dishonour, only to have the customer storm in freaking out about it, and then saying, "Well I didn't know when it's supposed to come out."

I hope to FSM that it is illegal.

Calendar or financial? (damn I'm being picky tonight...;)) [re student exemptions]

I should have written "calendar" here. I'll go in and do an edit and fix it up.

Basically, your exemption if you're a student will normally expire at Midnight on New Year's Day. Some banks do things differently, but for most, the process is automated.

Re: Banking Ombudsman - I'm going to do a post on complaints resolution schemes, I can tell. So enormously handy. So very vital.

Now that's out the way (sorry, it took me a couple of days to get through it), I have to go do research...:)

Research long and hard, Ted. Create a spreadsheet and do it that way. Seriously, this is easy stuff compared to shopping for a mobile phone.

Also, my next financial tips item is scheduled to be a case study in saving fees - namely me! This could help you out.

Cannex.com.au is excellent for this sort of thing, too.

Plonka said...

Re: ATM's, even after all of that (about 10 hours work a week, at anything up to $3 a pop with hundreds of thousands of transactions taking place each week, hmmm), I still say it's seriously disproportionate. I must admit though, I hadn't considered the loaded envelope...:)

But as you say, banks exist to charge fees.

As to the research, I was alluding to the tag (I was thinking about Fred Nile)...

Plonka said...

Opps, forgot to ask. Getting it all under the one roof (it's one of the 4 biggies with whom we have a loan) has to be the right thing doesn't it? I want to amalgamate my loan and mortgage at the very least. Just moving the mortgage alone would save me quite a bit each month (don't ask...:( ).

Dikkii said...

G'day Plonka,

You're probably right about that, although I wouldn't say that there is hundreds of thousands through your average ATM in a week. More like thousands.

Banks do exist to charge fees - nowadays. Interest related margins are getting extremely tight. On the other hand, investment banks make barely anything at all on interest and pretty much everything in fees. Call me cynical, but I wouldn't be too surprised if some other Australian banks started to more actively pursue the business model created by Mac Bank and B&B.

Loaded envelopes are funny now; at the time I remember being nearly sick - the smell was pretty rank.

Fred Nile, you reckon? Go for it, I say. I'm thinking more of an examination of how often Section 116 of the constitution is broken.

Re getting your banking under one roof - sometimes this is a good strategy. I won't deny that it is certainly convenient. And the fee incentives that banks hand out is certainly worth investigating.

But I do know of people who seem to do quite well with their banking all over the place too.

My advice? Crunch those numbers. See if your circs warrant it. And good luck.

Maybe down the track, I'll offer some kind of article on the mortgage broking industry - I reckon they're a bunch of cowboys.