ATM fees just the tip of a $4-billion-dollar iceberg

ATM fees just the tip of a $4-billion-dollar iceberg

While yesterday’s decision by the big four banks to dump controversial ATM fees has been met with applause, it’s just the tip of the iceberg when it comes to bank fees.

RateCity analysis of RBA data has revealed Australians collectively shell out $4.4 billion in bank fees every year, across home loans, credit cards, savings and transaction accounts.

RateCity money editor Sally Tindall said many of these fees can be avoided by shopping around.

“Our research has shown the average mortgage holder forked out almost $500 on banking fees last year, including an estimated $240 a year in home loan fees and $231 in credit card fees, totaling $471.

Collectively, Australians have been charged $1.56 billion in credit card fees, $1.24 billion in home loan fees and $1.06 billion in transaction account fees, according to RateCity analysis of RBA domestic banking fee data.

“There’s no need for Australians to be laboured with fees on their credit cards, home loans and transaction accounts when there are a range of fee-free alternatives on offer,” Ms Tindall said.

“Unfortunately many Australians turn a blind eye to fees, but when it comes down to it, where would you rather that money be, in your pocket or your bank’s?”

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COMMON FEE TRAPS

Credit card annual fees

There are 31 credit cards on the market that have absolutely no annual fees, so there’s really no reason to be coughing up this extra money year after year. Rewards cards in particular attract the biggest fees – the highest being an unsightly $1,200 a year.

Average fee: $130, maximum: $1,200.

Ongoing home loan fees

It may surprise you but paying ongoing fees on your home loan is far from inevitable. While the average annual fee is $339, there are almost 1980 products that don’t have any.

Home loans are full of hidden fees, so before you take one out, ask your lender for a complete rundown of the fees you’ll be expected to pay over the life of the loan. Knowing they exist up front will help avoid a nasty surprise later.

Average: $339 a year; maximum: $849 a year. 

Transaction account fees

Sometimes transaction accounts will sneak in a monthly account keeping fee which is small enough that it slips by relatively unnoticed. However, these fees are entirely optional – there are plenty of no-fee options available with the same functionality as their fee-based counterparts. The transaction account with the highest monthly fee in RateCity’s comparison chart comes in at $35 per month, so by switching to a no-monthly-fee account you could be saving up to $420 a year.

Average: $55 a year; maximum: $420 a year.

Overdrawn fees

Overdrawn fees are charged on your transaction account when you accidentally take more money than what’s in it. This is most likely to happen for a scheduled direct debit so it’s wise to set up a reminder at least two days beforehand to check you have enough cash to cover it.

These fees can climb as high as $40, and although they are less common than they used to be, we haven’t quite seen the back of them entirely.

Average: $11; maximum: $40 (every time you go over).

Balance transfer handling fees

If you’ve racked up some debt on your credit card, then a 0 per cent interest rate balance transfer card can be a way to buy yourself a bit of time. What’s important to remember with these cards is that one way the bank makes money is through a handling fee that will be a percentage of the amount transferred, usually around 2 per cent but can climb as high as 3 per cent. There are 148 cards on the market that don’t sting you with this additional fee, so be sure to check whether prospective lenders include this before signing the dotted line.

Average cost on a $10,000 balance transfer: $165; maximum: $300.

Overseas card fees

There are currently eight credit cards charging no currency conversion fee. Do your research before you leave and you’ll have spare cash to splash elsewhere overseas. 

Average: $29; maximum: $36 (per trip, based on a $1,000 spend on your credit card and use of the ATM four times).

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Learn more about savings accounts

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.