In these challenging economic times, financial institutions are increasingly vying for our attention and our dollars. As traditionally cheap funding from overseas markets is drying up, banks and financial institutions are seeking cheaper and safer sources of funds from local depositors.
As a result, there are many more institutions competing for our hard earned cash. While each of the big banks target their own "audience" in different ways the long and the short of it is that finally some healthy competition has emerged.
However not everyone is taking advantage of the banks need for funds. Indeed a recent report from the Reserve Bank of Australia (RBA) found, many Australians are still needlessly paying fees on their deposit accounts.
Inertia, loyalty to a brand and a perception of a difficulty in changing institutions works in the banks favour. But it does not have to be that way.
Fees for what?
If you think about it, financial services fees really means you are paying a bank to take your money. It’s kind of crazy that we have put up with this situation for so long, particularly as banks are increasingly needing access to our funds.
Mozo, an online financial comparison service, estimates that the average Australian household is paying around $470 a year in bank fees. And have found that there are huge discrepancies between the fees charged by different banks
So what are you paying for? Quite simply, many people are paying for the privilege of having an account. But you don’t have to.
Some fees being charged seem outlandish. Here are some interesting examples of what not to pay:
- The Citi Select credit card from Citibank has an annual fee of $749
- QSCU will charge you $2 if you get your PIN wrong at an ATM
- MortgagePort has a $1,500 home loan establishment fee
- Gateway Credit Union charges $60 a year if you want a debit card. This is free at pretty much every other financial institution.
How much should I be paying?
There are many financial institutions that offer unlimited, fee-free banking.
These types of offers tend to be from what are commonly referred to as the ‘challenger banks’. It’s a catchy term for the banks that aren’t the big players. These are generally smaller institutions that are looking to challenge the status quo to get customers.
This means a better deal for customers across most banking products. And crucially it means that you can change to, home loans without establishment fees, credit cards without annual fees and deposit accounts without monthly or transaction fees.
Fee free home loans
There are many factors to consider when looking for a home loan. Such as the interest rate, duration of the loan, extra repayment options, exit fees and establishment fees.
Commonly you can be charged a fee to open the loan, and also one to close it. Sometimes fees can be charged if you pay more than the minimum monthly amount, to fix a loan or even to redraw.
Make sure to compare these options across many loans. And when you feel confident enough to start negotiating with an institution, make sure to approach them with the mindset that everything is open to negotiation. All you have to do is ask.
For instance, if pressed, a bank will commonly waive the establishment fee to win your business. And when you’re buying a home, not having to pay hundreds or even thousands on a loan establishment fee can be a big relief.
And existing mortgages are not immune to getting a better deal. Pull out the paperwork, or call the vendor for a copy and check what your current loan is offering. You are fully within your rights to ask for a better arrangement. Even the threat that you are thinking of leaving will often get a positive response.
More: Negotiate a better mortgage
Fee free credit cards
Credit cards that come with rewards programs, gifts or links into frequent flyer programs often come loaded with fees. The fees cover these added services attached to the cards.
“Credit card fees vary dramatically, depending on the type of card,” said Kirsty Lamont, Marketing Director at Mozo. “The average annual fee for a Platinum card is a whopping $240, while the average rewards card will set you back $150 in annual fees. Many of these cards also charge an additional annual rewards program fee. So, you’ve really got to make the most of the rewards programs and other benefits of these sorts of cards to justify paying the fees.”
The card providers argue that they need to charge high fees to offset the rewards programs and other services. In reality, most Australians don’t earn enough in rewards points to make paying these fees viable.
“As a rule of thumb, you need to be spending over $15,000 on your card each year to offset the fees on a rewards card, and over $50,000 each year to offset the fees on a Platinum card,” explained Lamont.
So, if you’re not gathering enough rewards points, or using other benefits like travel insurance and concierge services, why pay for it? You may be better off with a standard non-rewards card, some of which have no annual fee at all.
Recent legislative changes have changed the way certain credit card fees can be charged. See Credit card rules change for a detailed explanation.
More: Weighing up the pros and cons of credit cards
Fee free deposit accounts
Most deposit accounts, that earn decent interest, do not charge monthly fees. Some cash management accounts do still charge fees of around $10 a month unless a minimum monthly balance is achieved. This minimum monthly balance can be as high as $10,000.
Every day bank accounts also often incur fees, but many are now fee free. Those with monthly fees, which average around $5 a month, often have additional features attached. Some accounts may charge additional for ATM withdrawals, EFTPOS transactions, overdraft facilities and other services.
So, consider the benefits of the features versus the cost of the monthly account fee.
Tips for comparing products
- Gather a short list of the products that meet your needs and appear to be within the pricing structure you are willing to pay.
- Check to make sure there are no sneaky fees hidden in the fine print.
- Check that you understand the terms and conditions that are attached to the product to make sure it offers what you think it offers.
- If in doubt, check with your accountant or financial adviser.
Tips for switching
- Apply online for new products. It saves time, effort and energy.
- If you are switching your primary bank account, take advantage of the Government’s new ‘tick & flick’ reforms. This allows your new bank to switch your direct debits from your old bank with a minimum of fuss.
More: Compare savings accounts
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