We're paying too much in "avoidable" bank fees

Posted on 18/07/2011  

Despite evidence banks are collecting less in fees, the average Australian household is paying $506 a year in fees which could mostly be avoided.

Financial comparison website RateCity says Australian banks collected $4.24 billion from households in fees and charges in 2010. While that was 16% less than in 2009, the company's chief executive Damien Smith says Australians are still paying more fees than they should.

RateCity advocates using financial comparison websites (like their own, of course) to compare financial products' rates and fees with others being offered in the market and switch if savings can be made.

They also recommend regularly checking balances online or by phone and setting up automatic payments to avoid missing a bill-due date. Smith says it is best to set up a transfer five days before the bill is due to ensure there is enough time for the transaction to be processed.

RateCity says households should also use their own institution's ATM network to avoid unnecessary fees. "Foreign ATM fees can really add up, especially with some institutions charging you a fee on top of the ‘foreign' ATM fee," Smith says.

RateCity says the drop in total bank fees in 2010 was largely due to the abolition of "exception fees" by many (but not all) institutions. Exception fees include charges for late and/or over-the-limit payments on credit cards and dishonour/default and overdrawn fees on everyday accounts.

"Exception fee revenue from households was down about 50% in 2010; however it still made $652 million in 2010, which was 15% of all household bank fee revenue."

RateCity says 64% of institutions charged exception fees ranging from $17 to $30 in 2010, compared with 71% in 2009 (when fees ranged from $21 to $40).

The Reserve Bank's survey on bank fees showed the first reduction in bank fee revenue since the RBA began collecting data in 1997. The reduction in household bank fees was mainly offset by an $820 million increase in business banking fees.

Smith warned households to look closely at the structure of their home loan fees, observing that banks increased revenue from home loan fees by $26 million in 2010. "While application fees have generally remained unchanged over the past couple of years, we've seen a big lift in the cost of ongoing fees," he says.

Smith says the cost of ongoing fees is equivalent to an interest rate increase over the life of a home loan. "If you're paying a 7% interest rate with a $240 annual fee, for instance, you're basically adding another $6,000 to your 25-year mortgage, or increasing your interest rate by 10 basis points."


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