South Africans love paying bank charges about as much as we love losing the cricket to the Australians.
But, unlike the cricket, there is plenty you can do about your bank charges.
The first question I ask these people at the dinner parties is “so, how much do you pay in bank charges every month?” The usual answer: “I don't really know, but it's too much”. Most people don't know how much they pay, they don't know which transactions are most expensive and, apart from grumbling at dinner parties, they don't do anything about it.
Are South African Bank charges really high?
There has been a plethora of media articles with attention grabbing headlines about South African bank charges, and how high they are in relation to the rest of the world. Usually, these comparisons focus on bank charges in the UK, which everyone quotes as “free”. Then there's the ‘visiting friends and family syndrome', where everyone knows someone from the UK with a “free” bank account. But is it really fair to compare South Africa with the UK, and is banking really free in the UK?
South Africa is a developing nation with a very different set of socio-demographics to the UK and other first world countries. We have a much higher crime rate (how often do you hear about cash-in-transit heists and bank robberies in London?), our people earn much less (and therefore have much less to keep in a bank account), are less financially literate, prefer using branches to ATMs and other electronic channels and often live in remote areas. The South African banks have committed through the Financial Sector Charter to provide access to banking services to people living in previously underserved areas such as rural areas, and have developed the Mzansi account (a very low cost account aimed at the unbanked population). This all costs money and yes, these costs are ultimately borne by all banking customers: But it's a part of building our nation which, along with sunshine and boerewors, is a part of what living in South Africa is all about. When our bank charges are compared with other developing countries in Africa and South America, we are definitely not out of line.
Comparisons also usually focus only on transactional account charges and exclude interest and penalty fees. But UK banks make considerably higher interest margins than banks in SA and charge huge penalty fees for exceeded limits and returned (bounced) items - as much as £35 (R500) per item! However, the UK Office of Fair Trade (OFT) – a consumer protection agency there - recently ruled that these penalty fees were excessive and should not exceed £12 (R175) per item. Interestingly, since this ruling, we have seen UK banks begin introducing new account fees!
Can I reduce my bank charges?
The first and possibly most important step in reducing your bank charges is to start paying attention to how much you are currently paying, and for what. Your bank statements are a good place to start, (you'll find those inside those envelopes from your bank that you never open).
First, find out if you're on the best possible banking product for your life stage. Some banks have special offerings aimed at students, graduates or persons over 55, and these niche offerings often provide benefits such as lower fees or improved benefits. Look out for discounted packages (e.g. a Credit Card and Cheque account) where products are sold together at a special price.
Then find out what kind of pricing option you are on. Most banks offer a choice of different pricing options, which will usually fall into one of these general categories:
Pay as You Transact: These options charge you a fee per transaction, depending on the type and value of the transaction. There may also be a monthly account fee and some banks charge subscriptions for access to certain services – such as internet or telephone banking. These options are good if your transactional behaviour fluctuates from month to month and a packaged option doesn't suit you.
Fixed Fee: You pay a fixed monthly fee for a number of transactions. There are additional charges if you exceed the allowed number of transactions, as well as for certain ‘excluded' transactions (cash deposits, penalty fees and withdrawals from another bank's ATM are common exclusions). These options are good if you have roughly the same number of transactions from month to month, and like to know in advance what your bank charges will be.
Free Banking for a Balance: You get ‘free' banking, provided you keep a certain minimum balance in your account. There is usually a limit to the number of free transactions (to prevent abuse), and additional charges for excluded transactions (again, cash deposits, penalty fees and withdrawals from another bank's ATM are common exclusions). Essentially with this type of option, you forfeit the interest that you would have earned (had the money been in an investment account) and get free transactions in return. Should your balance drop below the required minimum, however, you will pay for your transactions at standard rates.
Electronic Banking Option: Some banks offer a special (cheaper) option for customers that use electronic channels (such as ATMs, internet, telephone and cellphone banking, debit and stop orders as well as debit cards) and don't use branches or cheques. While this option suits me (as I hate using branches and don't really use cheques), it could prove expensive if you've chosen an electronic option and then use branches or cheques anyway.
Make sure that you're on the best option for yourself, based on the way you transact. Most banks provide an online fee calculator or a pricing hotline to help you choose the best option for you. There are also independent online calculator providers, whose websites provide fee comparisons across banks (try www.bankmonitor.co.za or www.thinkmoney.co.za). Be aware though that these may not compare all of the available options, and sometimes only compare the ‘pay as you transact' options. Also many of them are new – and have not yet always got information that's 100% accurate and up to date.
The other way that you can seriously reduce your bank charges is by transacting more efficiently. Physical channels that involve human interaction (such as branches or operator assisted telephone banking), and transactions that involve the physical handling of paper (such as cheques) are expensive to provide and this is reflected in higher transaction fees for these transactions. By transacting smartly you can save huge portions of your monthly banking costs:
Use ATMs for cash withdrawals instead of branches. ATMs are much cheaper than branch cash withdrawals, and you can avoid nasty teller queues. If you need larger withdrawals, you can request your bank to increase your daily withdrawal limit (which usually defaults to R1000 per day) to up to R3000. Be aware though that this increases your risk if someone else gets hold of your card
Use your own bank's ATMs instead of another bank's wherever possible, as most banks charge an additional ‘Saswitch' fee for using an ATM that's not theirs.
With a PIN-based debit card you can also draw cash at certain retailers' till points while you pay for your purchase from them. These transactions are known as “cashback” transactions, and are also a relatively inexpensive and convenient way of withdrawin