25 February 2020
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Slashing bank fees: a step in the right direction

Andrew Willink
30 July 2009

Recently in the UK, history was made when the Court of Appeal confirmed the decision of the High Court that bank charges are subject to fairness rules. UK’s banks have since appealed to the House of Lords however, the recognition by the UK’s governing bodies that rules need to be in place to keep bank charges fair is a huge leap in the banking sector.

If fairness rules for bank fees become law in the UK, this could spark an inquiry of bank fees around the world, including here in Australia. And it appears that our own banks are starting to catch on before the knife falls.

National Australia Bank (NAB) made an announcement this week that it will be abolishing their $30 overdraft fee for all of its personal transaction and savings accounts in October. The news should make many of its 700,000 customers happy and may result in a small chunk out of the bank’s profits, which was more than $3 billion in the 2007-08 financial year.

The NAB news followed not long after figures were released by the Reserve Bank of Australia (RBA) that banks and financial institutions earned $1.15 billion in exception fees in the 2008-09 financial year. Exception fees include overdraft fees as well as dishonour and default fees for transaction accounts, and over-the-limit fees and late payment fees on credit cards.

Most of these fees are avoidable and are disclosed in the terms and conditions of an account. They can be charged if there are insufficient funds for a transaction, for late payments on credit cards or if you exceed your limit.

Out of the $1.15 billion, the majority was paid by households – $954 million, and $201 million was paid by businesses.

Overdraft, default and dishonour fees on transaction accounts equated to half of household-paid bank fees. This was $475 million or 0.11 percent of transaction deposits which means, for the average Australian wage of about $48,000 (according to the Australian Bureau of Statistics), $52.80 is wasted each year in exception fees. This doesn’t include any other fees you may be charged on your credit cards such as over-the-limit and late payment fees.

Exception fee revenue however has dropped over the past five years according to the Reserve Bank of Australia, as credit card debt is more popular than going into overdraft. Credit card debt has risen from $27 billion in April 2004 to $44 billion in April 2009.

So even though it is doubtful that these exception fee figures will be dramatically different after NAB’s overdraft fee slashing, it is certainly a step in the right direction.

Tips to avoid paying exception fees include:
  • Compare what banks and institutions offer at RateCity.com.au to find the best value products on the market
  • Monitor you bank balance and keep track of your scheduled transfers
  • Double check you have entered in the correct account details for transfers
  • Keep a buffer of money in your accounts.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


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