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Fees and Charges on 'Budget' Bank Accounts
Phil Hanratty
Economics, Commerce and Industrial Relations Group
Intensified competition in residential loan markets has placed downward
pressure on the net interest income of banks. Banks have reacted both
by seeking to reduce operating costs (e.g. through branch rationalisation),
and by accelerating their existing attempts to increase non-interest income.
Fees and charges on the range of bank services and transactions have been
introduced and then increased.
Such fees and charges have generated much community opposition. Many
people have regarded them as unnecessary, additional imposts at a time
when bank profits are substantial and rising. Others have objected to
such fees and charges often being hidden. Concerns have also been raised
that low-income bank customers have been especially hard hit by such fees
and charges.
In this context, the former Prices Surveillance Authority (PSA) was
asked to investigate, and issued its report on bank account fees and charges
in June 1995.(1) It found that for Retail Transaction Accounts (RTAs)
the banks typically imposed a two-pronged pricing strategy. A fixed, monthly
Account Keeping Fee was levied to cover the costs of opening and maintaining
the account. Transaction fees were levied to cover the costs of operating
the account. Typically, one or both of these fees were waived if the Minimum
Monthly Balance was above some threshold. Most banks also allowed a number
of free transactions before transaction fees were imposed.
The PSA found this pricing structure to be both economically inefficient
and inequitable. In regard to efficiency, it argued that there could be
a better matching of costs and prices. In regard to equity, it argued
that access to an RTA was a necessary part of modern life and that all
Australian citizens require this access. It discussed the concept of a
Basic Banking Product (BBP) entailing, for example, features such as avoidance
of fees below some threshold number of transactions, access to both electronic
and over-the-counter mechanisms for transactions, a bill-paying mechanism,
and regular account information. It argued that while a few existing RTAs
resembled such a BBP, many did not.
However, it did not recommend regulation to compel banks to provide
BBPs, but instead argued that a more economically efficient policy of
explicit government subsidies might need to be implemented, to help reduce
the costs of operating existing RTAs by low income earners. The banks
themselves generally welcomed the PSA's recommendations. However, a number
of commentators continued to advocate the abolition of RTA features such
as Account Keeping Fees (AKFs) which, they argued, hurt low income people
far more than higher income earners.
By late 1995 the banks began to offer new 'budget' RTAs which more closely
resembled a BBP, abolishing the much-disliked AKFs. These accounts still
allow a number of free withdrawals, across most means of withdrawal, before
transaction fees are levied. Cheque-writing facilities are generally not
available and interest is generally not payable.
Low income bank customers-such as social security recipients-seem reasonably
well-served by these accounts. They can access their funds at little or
no cost. A number of budget RTAs also allow bill-paying through telephone
banking, at the cost of a local call. For the banks, the loss of revenue
from the abolition of AKFs has been balanced by not having to pay interest
on such RTAs. They seem reasonably satisfied with these arrangements.
The fees and charges for such RTAs are shown in the accompanying Table,
for selected banks, as of 10 February 1997.
ANZ CBA NAB Westpac St.George Advance Colonial
State Bank
Account Keeping none none none none none none none
Fee
Excess
Withdrawal Fees:
Own ATM $0.40 $0.45 $0.25 $0.65 none $1.00 $0.40
Other ATM $1.00 $1.00 $0.75 $1.00 $1.00 $1.50 $1.00
EFTPOS $0.40 $0.45 $0.25 $0.65 $0.40 $1.00 $0.40
Cheque n/a n/a $1.00 n/a n/a n/a n/a
Paper $1.25 $1.50 $1.00 $1.00 $0.75 $1.50 $1.00
Bill Paying
Regular Bills Free $1.80 Free n/a $2.00 Free under $0.20 for
5, then electronic
$1.00 payment
Telephone cost of cost of $0.30+ cost cost of n/a n/a n/a
Banking local call local call of local local
call call, then
$0.65 over
6
Free Withdrawal
Limits:
own ATM up to 6 up to 6 up to 8 up to 6 unlimited up to 5 up to 8
other ATM none none none up to 6 up to 5 up to 5 up to 8
EFTPOS up to 6 up to 6 up to 8 up to 6 up to 5 up to 5 up to 8
Cheque n/a n/a up to 4 n/a n/a n/a n/a
Paper up to 2 up to 4 up to 4 up to 6 up to 5 up to 5 up to 8
Free Deposits unlimited unlimited unlimited unlimited unlimited up to 5 unlimited
Excess Deposit none none none none none $1.00 >5 none
Fees
Minimum Monthly none none $500.00 none none none none
Balance
Interest Paid no no yes no no no no
(<$2 000) (<$1 999)
Key
n/a = not available
Paper = Over the Counter
Limits On Free Withdrawals Are Per-Month
Account Types
ANZ: Access Simplicity. Free withdrawals 6; only 2 of these can
be over the counter (paper).
CBA: Basic. Free withdrawals limited to 6; only 4 of these can
be over the counter (paper).
NAB: Flexi Account. For minimum monthly balances > $500 : no
transaction fees (except other atms).
Westpac: Basic. Free withdrawals limited to 6 (of any type).
St George Bank: Basic. Free withdrawals limited to 5 (own atms
are always free).
Advance Bank: Everyday Basic. Free withdrawals and deposits limited
to 5.
Colonial State Bank: Basic. Free withdrawals limited to 8 (of any
type).
Endnote
- Prices Surveillance Authority, Inquiry into Fees and Charges Imposed
on Retail Accounts by Banks and Other Financial Institutions and by
Retailers on EFTPOS Transactions, Report no. 65, 30 June 1995.
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