Money: Bank fees - It's all take and no give

By PHILIP MacALISTER

Bank fees and service seem to get up New Zealanders' noses.

The Consumers Institute, a lightning rod for discontented customers, says fees are one of its most common subjects for correspondence.

Banking Ombudsman Liz Brown says complaints about fees and charges have risen in the past three years.

Last year, 14 per cent of all complaints to her office were about fees and charges, compared with 6 per cent two years earlier.

The two areas attracting more complaints were transaction errors and breach of contract (18 per cent each). Such figures do not indicate high customer satisfaction.

New Zealand Post Enterprises chief executive John Allen is aware of the problem.

"Our research is telling us that people are highly dissatisfied with their banking arrangements. People do not feel positively disposed to banks."

Bankline, an 0800 initiative seeking feedback on banks' performance started by former Consumer Affairs Minister Phillida Bunkle last year, also revealed strong dissatisfaction.

"By far the largest number of complaints [580] concerned fees and charges," Ms Bunkle said last year.

"The other key issues were customer service issues, benefit-related problems, and concerns that they had been treated unfairly or harshly.

"The general feeling from callers to Bankline was that fees are excessive, and banks are not specifying what they are for."

KPMG banking and finance group chairman Andrew Dinsdale says people should understand how banks levy charges.

Broadly speaking, banks gather their income from two sources: fees for services and interest margins - ie, the difference between their lending rates and the interest they pay depositors.

He says each bank has a different strategy. For instance, TSB Bank does not charge fees so it must earn its money through greater margins.

There has been a big shift in recent years from margins to fees, he says, and margins have been steadily falling.

Margins were as high as 14 per cent in the 1980s, compared with a typical 2.5 per cent now. When they were high, mortgage borrowers were subsidising retail banking services.

Mr Dinsdale says that although people complain about fees, they should remember that mortgage borrowers are better off than they were.

But despite rising fees for over-the-counter transactions, banks report no corresponding decrease in the proportion of such transactions.

It is not surprising, therefore, that customers have experienced substantial increases in their banking fees.

Banks, for their part, have not adequately explained how their customers can minimise fees, says Mr Dinsdale.

But that is changing. WestpacTrust is advertising along these lines, as is ANZ.

WestpacTrust, which often ends up at the bottom of customer satisfaction surveys, is running a campaign based on helping people to save money on their fees.

It has written to 30,000 customers offering advice.

One of the ironies of bank fees is that while people are quick to complain about them, often they do not do anything themselves to help reduce their costs.

The problem, say some experts, is not related to just one group of people. Often people at the lower end of the socio-economic spectrum are not sophisticated enough to deal with the issue.

At the other end, people may have no time to examine their fees, or pay little attention to fee levels because their incomes are so high.

Consumer magazine reviewed the fees paid by three people to see how they could save money. In two cases, the institute achieved annual savings of $108 and $133 respectively. But in the third case it managed to rearrange a couple's financial arrangements to slash their fees by $3000 a year.

In recent years, banks have been reducing their expensive branch networks and encouraging customers to use electronic transaction tools such as ATMs, Eftpos machines and internet banking.

Figures from the Bankers' Association show a marked shift from paper to electronic transactions since 1995.

Cheques and paper deposits accounted for 38 per cent of banks' 1 billion transactions in 1995, and Eftpos accounted for just 15 per cent.

Four years later, paper-based transactions fell to 20 per cent, and Eftpos increased to 33 per cent of the 1.3 billion transactions processed.

The latest driver is internet banking.

In the United States, customers can save big money by embracing internet banking.

New Zealanders, however, do not have that opportunity. A survey of New Zealand banks shows that all use their electronic fee transaction schedule for internet banking. The National Bank even charges a monthly service fee (of $1) to use its online banking.

But if you want to save money on your bank fees, you don't need the internet to do something about it.


Ways to save on fees


* Think about how you pay bills. It's cheaper to pay bills electronically, either over the phone or the internet, than to write a cheque. Although the difference is small, it all adds up. The cost of paying six bills a month by cheque is around $36 a year (or two bottles of half-decent wine).

* If you have a savings account with an average balance of more than $5000 and a normal day-to-day transaction account, consider merging the two into an account paying a decent rate of interest.

For instance, Bank Direct offers its Higher Interest account, which has no transaction fees and pays interest at 5.8 per cent each month calculated on the average daily balance.

* Be careful which eftpos machines you use. If you use a rival bank's machine you may be charged a significant fee.

* Combine as many transactions as possible. For instance, get cash out when you buy petrol or pay the supermarket bill.

* Pay full credit card balances on the due date. Otherwise you will end up paying interest rates of nearly 20 per cent on the outstanding balance.

* Philip Macalister edits online personal finance magazine Good Returns. Good Returns provides news, information and data on managed funds, mortgages, financial planning, insurance, superannuation and trusts and estate planning.

* E-mail mailto:philip@goodreturns.co.nz