Are Australians wising up to bank fees?

Are Australians wising up to bank fees?

The Australian Bankers’ Association Inc have released new figures that total bank fees collected from Australian households are at a seven year low. This makes it the third year in a row that households are paying less in bank fees.

However, before you get too excited and sign up for a credit card, while the bank fees have fallen by $1.12 billion compared to three years ago, households still payed an extortionate $4.05 billion in bank fees this year (2012).

It seems bank fees can be a licence to print money and no-one wants banks profiting at their expense. So how can you eliminate, or at least minimise, bank fees from your life? There are a few basic rules to remember in order to do this. The first is to know the product you are using. Read the fine print and understand what it will and won’t do. Does it suit the way you bank? If it doesn’t work the way you do, you are likely to incur fees as you go along.

Complete the following checklist and see how your current banking products rate:

1. Bank fee-free. Consider using accounts which are free of fees and charges. Different charges may apply for different transactions, such as over-the-counter, electronic, telephone or internet banking transactions. If you are not sure what you are being charged and whether or not there are more suitable products you should be using, ask your financial institution. This simple dialogue could save you hundreds per year.

2. Stay above your limit. Know what the minimum monthly balance is on your account and try not to go below it. That way you can say goodbye to costly over-the-limit penalties.

3. Use your bank’s ATM. Search out the locations of your own bank’s ATMs at frequently used places (home, work etc). Use these ATMs whenever possible to avoid being slugged a fee of $1.50 to $2 each time. Think about how often you use ATMs and you may be unpleasantly surprised at how often you incur these fees because they all add up. A little more planning could be in order. For instance, getting some extra money out when you pay on EFTPOS for your groceries counts as one transaction instead of two.

4. Avoid cash advances. Cash advances on your credit card are the most expensive way to access money and should be avoided at all costs, if possible. Typically, you will be charged either a fee or a percentage of the amount advanced. The worst thing about cash advances is that the full interest rate is charged from the moment of transaction. So don’t be caught thinking you’ve got 55 days interest-free to pay it off. You haven’t. It’s clocking up interest straight away.

5. Use discounts. Packaging loans and transaction accounts can waive fees or attract discounts. Bank packages usually include home loans, personal loans, credit cards and term deposits etc. Transferring money within the same bank will also save you a bundle. Investigate what you need to qualify for discounts at your bank. There may be a better, less costly way of structuring your accounts to make the most of discounts.

You don’t need to wait until you hear about the banks’ massive penalty fee revenues to shake you out of your procrastination. It’s always wise to keep regular tabs on your bank accounts and make sure they are still working for you. Everyone’s circumstances change somewhere along the line and what is perfect for you now may not necessarily be so in the future. There’s no substitute for comparing financial products, even if it’s just to reassure yourself that you’re getting the best deal already.

Use RateCity’s comparison tools to find some of the best credit card and savings account rates.

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Learn more about credit cards

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How long does it take to get a credit card?

There are a few stages you need to go through to get a credit card; each one takes a different length of time.

Applying for the card online, over the phone or in person is the fastest step. This usually takes around 15 minutes, provided you have all of your documents handy.

After submitting your application, it usually takes between one to 10 business days for the lender to assess your eligibility. Some lenders offer instant approval, although you will need to send supporting documents before it is official.

Once your application has been approved, expect to wait between one to 14 days to receive your card in the mail. Keep in mind that delays can happen during busy periods, such as if the lender has launched a special deal.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

Monthly repayment

This is how much you can afford to pay on a monthly basis off your credit card. You can enter any amount you wish; but to make the balance transfer worthwhile the default is $200.

Are there credit cards for students?

Yes, there are credit cards available with students in mind. These can help young Australians to build their credit report and learn crucial life skills around budgeting and managing personal finances.

Which credit card has the highest annual percentage rate?

The credit card market changes all the time, so the credit card with the highest annual percentage rate is also liable to change.

Keep in mind that credit card interest rates are expressed as a yearly rate, or annual percentage rate (APR). A low APR is generally good but also consider:

  • There can be different APR's for each feature of the card (e.g. purchases may have an APR of 14 per cent, while cash advances on same card could have an APR of 17 per cent.
  • Credit cards with a variable rate can change throughout the year, affecting your APR, so check the full details.
  • If you pay your balance in full every month, having the lowest APR is not as important as the other fees associated with the card. However, if you carry a balance from month to month, then you want the lowest APR possible.

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

What is the lowest monthly repayment on my credit card?

As a rule of thumb, this tends to be around 2-3 per cent of the outstanding balance. You can choose how much you want to repay each billing period as long as it is higher than this minimum required amount.