Transaction charges are back in vogue, but it is still possible to avoid – or at least minimise – the charges you incur. Just don't let yourself be ruled by inertia, writes CAROLINE MADDEN
Fees have been creeping back in over the last year as banks find new ways to boost their revenues
BANK CHARGES are a little bit like Ryanair fees, or clampers. It’s not until you get stung by them that you truly understand why they wind people up so much. And like excess baggage charges and those nasty yellow wheel clamps, part of the reason they’re so irritating is that – in theory at least – you could have avoided them.
Such was the reaction of this writer upon discovering a sneaky €33.04 being sliced off her current account balance by Bank of Ireland in quarterly fees. As a pay-as-you-go current-account holder, 28 cent of my money is pocketed by the bank for every transaction I make, which includes ATM withdrawals (I make a lot of those) and Laser card payments (and even more of these). Of course, I’m not alone in this – about 50 per cent of Bank of Ireland’s current account customers pay charges. So how can you avoid them?
The first option is to switch from pay-as-you-go to a quarterly flat fee of €11.40. This allows you to make up to 90 transactions, but any transactions over this limit cost 28 cent each.
The second option is to try to qualify for fee-free banking. This sounds like a winner, until you start reading through the conditions. At least €3,000 has to be lodged into the current account during the quarter, but the real kicker is that you have to make at least nine debit payments from that account using Bank of Ireland’s phone or online banking service.
Nine debit payments doesn’t sound too bad until you realise that they can’t include standing orders or direct debits. It covers things like topping up your mobile phone, or paying down credit-card debt, but if most of your bills are paid automatically, meeting this requirement is tricky. If this isn’t feasible, or you’re not comfortable using online or phone banking, there is a third option – keep your current account balance above €3,000 throughout the full quarter.
Assuming one had a spare three grand to leave lying in a current account at all times, such a move isn’t necessarily wise. Áine Carroll of the National Consumer Agency makes the point that you will lose out on interest you could be earning on that lump sum if you put it on deposit. Even if you put that amount into an instant-access deposit account, you could earn about €100 a year, depending on which account you choose, she says. Some current accounts yield little or no interest, and so the interest you would forego could outweigh the benefit of avoiding fees.
Lest anyone should think we’re picking on Bank of Ireland unfairly, we should stress that it is certainly not the only financial institution to apply charges (though it has set some of the most onerous conditions).
Free banking was introduced into the Irish market during the past decade as banks vied for market share, but the days of fighting for customers are over. Fees have been creeping back in over the last year as banks are forced to find new ways to boost their revenues. “It is almost non-existent now,” says Dermot Jewell of the Consumers’ Association of Ireland. “The requirements are quite extreme.”
Jewell says that once Bank of Scotland Ireland exited the Irish market in 2010, competition was sucked out of the sector. As soon as the sector ran into difficulty, banks made it extremely difficult to access fee-free banking, he says. The banks are aware it’s not feasible for many people to meet these requirements, he says, adding that in some cases bank customers are paying more than ever before in fees.
"It's a minefield. You've got to know where the mines are," says Frank Conway of moneycoach.ie. "You've really got to do that extra bit of work to hold on to your money . . . where fees and charges come up right across the board."
In a study published before Christmas, the Central Bank examined the five main retail banks in Ireland and found that Bank of Ireland and Permanent TSB have the largest balance/turnover criteria of all of the banks. By contrast, AIB requires just one debit purchase and one debit transaction, using online banking per quarter to qualify for free banking. National Irish Bank offers free banking for all transactional banking on its Easy Account, but fee-free manual withdrawals are restricted to six per quarter. The Central Bank found that Ulster Bank had the lowest entry-level criteria for accessing free banking, with certain current accounts not requiring any particular level of usage or turnover.
If you're considering switching to another institution in a bid to access free banking, first take a look at the detailed cost comparison of current account charges available on nca.ie, updated every working day, to find out which account is best suited to your spending patterns and money-management behaviour. While switching is certainly worth considering, bear in mind that the institutions currently offering more favourable terms may not be able to afford to continue doing so for much longer.
When it comes to avoiding charges, it’s not just day-to-day transaction fees that people need to keep an eye out for. Even worse are the punitive out-of-order fines slapped on customers who break their bank’s rules. So, for example, if you let your current account balance slip into an unauthorised overdraft position, you’ll be heavily penalised, and if you don’t have enough money in your account to make outgoing payments, you’ll face an unpaid item fee.
The Central Bank found that the average yearly cost of running a personal current account came to €86 for those who managed their accounts effectively, but rose to €231 for people who incurred these types of out-of-order charges. The problem is that such charges are more likely to arise for bank customers who are in financial difficulty and are struggling to keep a positive balance in their current accounts, rather than being simply down to carelessness or mismanagement. The Central Bank recently instructed banks to be more proactive in contacting customers who are repeatedly incurring these charges with a view to putting a long-term solution in place to help them.
There are a number of other ways in which bank charges can be minimised. For instance, senior citizens shouldn’t be coy about revealing their ages, because many institutions offer fee-free banking to customers over 60. Banks might not be aware of a customer’s age, so it’s worth informing them just in case.
Be wary of cheques. If you try to lodge a cheque into your account and it bounces, then the bank may well add insult to injury by charging you for presenting a cheque drawn on an account with insufficient funds (as well as charging the person who wrote the cheque). So not only are you out of pocket because you haven’t got the money owed to you, but you may have to pay what’s known as a “cheque lodged/returned unpaid” fee of as much as €10, through no fault of your own.
Also, make sure to file away hard copies of all bank statements. You may need them in the future, for example if you’re applying for a mortgage or filling out your tax return. Branch staff used to be helpful and would print them out free if you asked them nicely enough, but banks realised they were missing a trick. Now, duplicate statements can cost as much as €5 per page.
If you haven’t already signed up for online banking, now may be the time to embrace it. The Central Bank found that because online users have greater visibility of their current account position, it enables them to actively manage it and avoid becoming overdrawn. “A customer with less visibility over their account may find it more difficult and time-consuming to manage,” it said.
Also, some banks reward their customers for carrying out transactions using online or automated methods, rather than those involving bank staff.
Arguably the biggest barrier when it comes to accessing free banking is inertia. “One thing we have found is that a lot of people are not really motivated to look at charges,” says Áine Carroll. This apathy is exactly what banks are counting on, but it’s one thing that consumers actually have the power to do something about.
