Pre-Class Assignment: BEAT the Fees Business & Marketing Coursework

Please see document attached with the article and questions to be answered.

Pre-Class Assignment:   BEAT the Fees   Submit before Class 4 for discussion In-Class

Beat the fees: Cutting your banking costs        by Raffi Anderian

Bank fee tips:                              By Madhavi Acharya-Tom Yew |Toronto Star Sun Nov 7 2010 

• Ask about free or rebated banking fees.  The more services you use the better chance of a package deal.


• If you use ABMs other than your bank's try for a banking plan that offers free access to other ABMs.


•  A minimum account balance qualifies you for lower fees.  

 “I think fees are always at the top of everyone’s mind, especially when it comes to banking. It seems to be a lightning rod,” Chris Barber, director of personal banking accounts at the Royal Bank of Canada, said in an interview.Bankers naturally put a positive spin on fees charged for services rendered. Sixty per cent of Canadians say they pay $15 or less for monthly service fees, according to the banker’s association. About one in four, 28 per cent, report paying nothing at all. Data from Statistics Canada also show that Canadians spend more on fees for cable or satellite television, prescription drugs, and even lotteries each month than on bank service fees. “Banking plan fees have not gone up that much over the years, particularly compared to the other fees you’re paying every month. Remember when cable TV was $6 a month?” said banking industry consultant David McVay.  In fact, just over half of RBC customers, 56 per cent, have free or rebated banking.

Like other major banks, RBC offers special rates to students, seniors, and customers who also have their mortgage, credit card, or other products with the bank. Ask about discounts that apply to you; as a backup also look at your bank’s website for potential discounts, for instances from bundling services that you need together.  “We have it set up that it really is about bundling things together and passing on savings. We want to be transparent about that,” Barber said.  For most consumers, the most visible, irritating service charge is the surcharge for using another bank’s automated banking machine.“It can cost more than $8 to use an ABM that is not owned by your financial institution,” the Financial Consumers Agency of Canada points out on its website.  That’s as much as $1.50 at your own financial institution, another $1.50 by the other bank, and a convenience fee that can range from $1 to $5.60 depending on the location and the operator of the ABM. Privately-owned, or so-called white label, machines tend to charge the highest fees.  Many consumers don’t realize how expensive it can be to use another ABM, said Julie Hauser, spokesperson for the financial consumers agency. “There is an indication there will be a charge but people don’t know how much it will be, and they don’t see all the in-between charges.”  Option consummateurs, a Quebec-based non-profit consumer advocacy group, has been pushing for years to stop convenience fees, to no avail.  “We thought it was double dipping because for the same transaction, consumers pay one fee by their bank and another at the white label machines,” said Jean-François Vinet, the group’s financial service file analyst.  “It’s normal for consumers to have to pay a fee when they use a service, but does that fee reflect the cost? We are really not sure. Banks want consumers to use automated machines because it decreases the costs of providing the service. In theory we were supposed to see fees decrease, long term, but that hasn’t happened.”

Fees haven’t fallen because of other factors, the Canadian Bankers Association argues, including that at places like gas stations and convenience stores, banks must pay the owner of the location a fee to place a machine on the property. There are also maintenance and software upgrading costs.  From 1996 to 2009, Canada’s biggest banks have invested $55.8 billion in technology to ensure a convenient and secure banking system, the CBA says.  There are about 17,000 bank-owned ABMs in Canada, and more than 40,000 non-bank machines.   The costliest bank fees are typically those for bounced cheques, also known as NSF or non-sufficient funds.  When you write a cheque but don’t have enough money in your account to cover it, you’ll typically be hit by steep charges, as much as $40 or $50, from your bank and the company to whom you wrote the cheque. An NSF cheque can also damage your credit report.  On the other hand, if the bank honours the cheque, the interest rate on the overdraft funds can hit an annual interest rate of 20 per cent, as well as service charges. The banks say the fee is high customers in this situation have a high risk of default.  Overdraft protection can be added to an account for free or a monthly charge of about $5. There is the case to be made this is one of the “good fees.”  While you will still have to pay interest on the overdraft funds, you won’t pay the punitive service charges if you arrange this protection in advance.

Consumers can also cut their monthly fees by resisting the urge to use another bank’s ABM. Some banks even include access to other bank machines as part of a monthly package. The easiest way to lower your costs is probably a monthly plan. “People are very sensitive about the a-la-carte fees but if people are part of a package plan, we tend not to hear from them,” McVay said.  Eight Canadian banks offer low-cost accounts, meant to meet government guidelines to ensure that all Canadians have access to affordable banking services.  Features of these accounts include no charge for deposits, the use of a debit card, cheque-writing privileges, free account statements, up to 15 debit transactions per month — all for a maximum monthly fee of $4. The Financial Consumer Agency of Canada has posted a list of these accounts.   Several banks will waive the monthly fee if a minimum balance of $1,000 is maintained in the account.

Madhavi Acharya-Tom Yew is part of the Moms on Money blogging team.