Monday, 4 July 2011

Bank Fees: What are they good for?

Do you ever wonder why we pay banks to keep our money? It’s a thought that bothers me often. Especially when I hear of friends and family paying hundreds of dollars a year to keep their chequing accounts open. Not long ago my bank charged me $1.25 to “look” at a recently cashed cheque on line.   This raised a lot of questions in my mind. To get the answers I went to the BankGuru. He's with a website dedicated to providing breaking news on the Canadian Banking Industry.  The website’s objectives are simple; provide unbiased, critical, and transparent information on the financial industry.

Rubina: Why do banks charge fees?
Bank Guru: Banks charge monthly fees on bank accounts because it is their business model. Canadians need to understand that each and every bank is a business. They use the money that we deposit to lend, finance, and invest through capital markets. Most banks use the monthly fee (model) to offset cost but at the same time they can profit from them. 


Rubina: Are bank fees fair? Why or why not?
Bank Guru: Personally, I am fine with bank fees. I understand from a banks perspective that the bank fees cover some/all costs in holding my money. It becomes unfair when you, a loyal bank customer get charged ridiculous bank charges on top of your fee. Charges that don’t even seem fair. A great example recently just happened to me, I have a few thousand I put in a chequeing account as a buffer. Yet I get charged a small interest for every thousand dollars I have in that account.
For Canadians who are extremely tight on cash, spending an additional $10 to $30 a month on banking fees will seem unfair. They clearly would prefer to put that money into more necessity items like food and clothes. The Canadian banks should review this and provide ‘free’ or $1 accounts to Canadians that are poor or are below a certain yearly income threshold. They will be able to retain clients and also push back some of the free Bank account options out there. 

Rubina: What is your opinion on the fees Canadian banks charge?
Bank Guru: I think all bank account fees need to be lowered. Especially for people who have several accounts under one name. Banks should provide a bundle package, allowing consumers to save more and invest that savings. I feel like rioting protesting now for lower fees.

Rubina: How are banks like ING and President Choice able to offer no fee bank accounts?
Bank Guru: I am unable to speak on specifics on either company as I do not work for them. Most likely ING Direct Canada and PC Financial have two potential models to offset cost. They are both backed by extremely large organizations. The larger organizations could have helped in financing and upkeep in the beginning of the operations, till they reached profitability to stay afloat on their own. The second option is that the money deposited into the accounts is reinvested through Capital Markets. The return on the gains in Capital Markets outweighs the costs it would take to manage and promote getting no fee bank accounts. 

Rubina: What is the biggest misconception about no-fee bank accounts?
Bank Guru: When you save money in a no-fee bank account you save a unicorn from extinction.

Rubina: Why can't Canada have a system, as in Europe, where you can access your money at any bank at any time with no fees?
Bank Guru: We could have a very similar system here in Canada! The issue comes down to the current business model that has been established and ‘working’ here. The Europeans were able to get no fee accounts across Europe for two main reasons. The first being they put a bit of pressure on the governments and on the private sector. Secondly, Europeans (specifically Germans) are notorious for traveling. Canadians don’t travel as much and enjoy life as much as the Europeans do. But then again our economy is doing a lot better than Greece and Ireland. The Canadian banks could all easily support a free bank account, I’d even say they could convert all bank accounts to a free model and still stay afloat with ease. 

Rubina: What are some situations where bank fees cannot be avoided?
Bank Guru: I actually think all bank fees can be avoided. It all depends on how much time you can spare to avoid it.

Rubina: How can Canadians avoid paying bank fees?
Bank Guru: Switch to ING Direct THRiVE account or a PC Financial bank account. We did a comparison battle on both free chequeing accounts and the results were a bit surprising. I’d also advise not to put money underneath your bed or floorboards, we aren’t living through the great depression and you leave yourself vulnerable to a burglary. Plus I hear leprechauns (little children) like to take money sometimes from there parents.

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