How to reduce your bank fees

Bank fees can be very confusing.  With several banking products available in the market, and with different terminologies used to describe the nature of the fees charged on these accounts, it is no wonder consumers often get confused or lose track of the fees they are paying.  A simple understanding of when and where you get charged fees can help significantly reduce your fees by minimising the situations giving rise to fees.

Australian banks charged a total of $11.6 billion in fees during 2008 (Source: Reserve Bank of Australia, May 2009: ‘Banking Fees In Australia’).  Exception fees accounted for $1.16 billion (10 per cent) of banks’ total fee income.  Banks raked in approximately $960 million in penalty fees from households and $200 million from business customers.

Exception fees are typically charged by a financial institution when a consumer makes a late payment, overdraws an account or exceeds a credit limit.  Most of these fees are pure profit for the banks.  Analysis conducted by Deutsche Bank has revealed that 87 cents in every dollar a big bank takes from a customer in penalty fees is pure profit.

The Government’s proposed unfair contracts law set to be in place by January 2010 will allow consumers greater power to challenge banks on fees that are regarded as being unfair.  The banks have responded and in recent weeks the major banks have announced plans to forego penalty fees, by either scrapping them altogether or reducing them.

The targeted date for these exception fees to be reduced or abolished is on 1 October 2009, however NAB has announced, effective from 7 September 2009, to get rid of these fees early.  ANZ has decided to delayed these changes until 15 December 2009.  Listed below are the key changes:

ANZ

Overdrawn (honour) Fees will reduce from $35 to $6 on all personal transaction accounts

*  Dishonour Fees will reduce from $35 to $6 on all personal transaction accounts

*  Over Limit and Late Payment Fees will reduce from $35 to $20 on all home, personal, credit cards and Esanda consumer loans

Click here to view a detailed explanation of these fees and a list of accounts that are benefiting from from these changes.

Commonwealth Bank

*  Dishonour Fees will reduce from $35 to $5 on all personal and business transaction accounts

*  Overdrawn Approval Fees will reduce from $30 to $10 on all personal and business transaction accounts

*  Late Payment Fees will reduce from $45 to $25 on all home, investment and personal loans

Click here to view a detailed explanation of these fees and a list of accounts that are benefiting from these changes.

NAB

*  Account Overdrawn Fees will be abolished from $30 to $0 on personal transaction and savings accounts

Click here to view a detailed explanation of these fees and a list of accounts that are benefiting from these changes.

Westpac

*  Account Overdrawn Fees will reduce from $40 to $9 on all personal and business accounts

*  Outward Dishonour Fees will reduce from $35/$50 to $9 on all personal and business accounts

*  Periodical Payment Not Made Fees will reduce from $35/$50 to $9 on all personal and business accounts

*  Missed Payment Fees will reduce from $35 to $9 on all credit cards and personal loans

*  Over-Limit Fees will reduce from $35 to $9 on all credit cards and personal loans

Click here to view a detailed explanation of these fees and a list of accounts that are benefiting from these changes.

Tips to avoid exception fees

1.  Regularly check your account balance to ensure there are sufficient funds available to cover any transactions or purchases but be weary of free transaction limits that may be imposed on your account. Internet and telephone banking is a good way to monitor usage as it is significantly cheaper and far more convenient as you have 24/7 access.

2.  Check when periodical payments or direct debits are due and reschedule them if necessary. If there are insufficient funds in your account when a periodical payment or direct debit is scheduled, you are likely to be charged a late payment fee or debit dishonour fee from the biller.

3.  Choose a bank account that does not charge exception fees at all. Make sure you read up on the terms and conditions of each account, as they can vary significantly. Students, concession card holders or low income earners may be eligible for lower fees accounts.

4.  Some banks will switch off the ability to exceed your credit card limit on electronically authorised purchases and cash transactions. It might be worthwhile increasing your credit limit if your spending habits have changed, but make sure that the credit card you use is the most suitable for your spending patterns. Paying for unnecessary features such as complimentary insurance, purchase protection and rewards programs may end up costing you more in the long run.

5.  To avoid late payment fees you should ensure that you pay at least your minimum monthly payment by the due date. It is recommended that you don’t just pay the minimum payment required, as you'll be charged interest dating back to the purchase of each individual item, thus forfeiting the interest free period on the past purchases. Until the balance is paid off in full, current and future purchases will not be covered by interest free period.

6.  Banks may offer the following services – SMS alerts for both successful and missed transactions or a ‘sweeps' facility to automatically transfer funds from another account when a direct debit is presented which may overdraw an account. Some transaction accounts may have a ‘safety net' facility which provides an overdraft limit also. These features are likely to incur a cost but may just provide added comfort or peace of mind.

7.  Most importantly, shop around. Leading finance comparison sites such as infochoice.com.au can help consumers make better informed decisions around finding financial products that are better tailored to their needs.

Source: Infochoice.com.au, ABA, RBA

Published: 19 September 2009

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