Easy Pickings

Sydney Morning Herald

Wednesday October 7, 1998

VITA PALESTRANT

Banks seem to think our accounts are fair game for fees and charges. VITA PALESTRANT tells how to get their claws off.

WHEN the banks introduced annual fees on credit cards six years ago, they told customers that from now on the "user pays" principle would apply. Since then fees have shot up, service levels have dropped and the banks have made extra-

ordinary profits.

Finding ways to achieve low-cost banking is a challenge for even savvy consumers. But it is still possible if you're prepared to sift through the information and shop around.

John Hall, retail banking general manager at the Credit Union Services Corporation, says the trend among financial institutions is to charge more explicitly for services as interest margins fall. "The general rule is the more you resort to self-service banking, the more likely you are to avoid fees."

Cassandra Williams, research services manager at Cannex, says consumers should make the effort to familiarise themselves with the fee information provided in bank brochures.

"There are always ways to minimise fees," she says. "Economical low-cost banking is possible regardless of who you are, but you have to be aware of what's going on."

Since 1993, credit card charges have blossomed in lots of different ways. Banks have creamed off more interest income on cards with interest-free days by changing the way they calculate interest on overdue payments. They have also found new areas for fees.

A cash advance made over the counter can cost between $1.25 and $3, depending on the bank you use. And National Australia Bank has introduced a $20 late-payment fee. Meanwhile, existing fees are on the march again. ANZ has raised its annual card fee from $22 to $25 and introduced fees on cards that never had them, such as Visa Standby - $25.

It may represent the start of a new round of fee increases.

But it hasn't stopped there. The banks are keen to introduce fees across the board wherever they have products. Home loans now typically carry a monthly "loan service fee" of between $5 and $8 (see table, 8m). Although borrowers tend to focus on interest rates when shopping around, monthly fees can add several thousand dollars to the cost of a loan. It's a point which mortgage originators don't hesitate to make a meal of.

However, when it comes to "user pays" principles, the transaction account is in a class of its own. For most of us, the account is an essential money management tool without which we cannot function.

Over the past few years, consumers have been pushed into self-service banking and then hammered with escalating costs (the exact reverse of what happened in supermarkets, which delivered lower prices).

The costs of using ATMs, EFTPOS and telephone banking - all free to start with - have been mounting. EFTPOS, originally cheaper than ATMs, now costs as much, with telephone banking not far behind. Once Internet banking reaches critical mass, fees, no doubt, will creep in.

Steven Dooley, research analyst at MarketFaxts, says consumers need to be pro-active. "Fees and charges are designed to stop you from using highly charged services such as branch networks. They are designed to herd you to the most cost-effective way to perform your banking for them."

Transaction accounts are now fairly complicated products. The easiest way to select an appropriate account is to review old statements and identify your banking behaviour and match it with a suitable product. The alternative is to modify your banking behaviour.

However, you may be entitled to fee-free banking or concessions and that should be your starting point.

If you have a home loan or other significant business with your bank - either deposits or loans with an accumulated value of between $20,000 and $30,000 - you may be entitled to a fee-free transaction account (as well as a free credit card) but you have to ask. While banks could activate the waivers automatically, they rarely, if ever, do so.

Students, pensioners and people with disabilities are often eligible for concessions, but are not always aware of it. However, these vary from one institution to the next and it's up to the consumer to work out where their best bet lies.

The Commonwealth Bank, for instance, offers a full rebate on withdrawal fees to customers who have been with them for at least two years and who depend on over-the-counter banking services because of a disability that prevents them from using self-service banking facilities.

Even so, with branches drastically reduced through closures, elderly and frail customers stand to lose such savings on the cost of taxi fares to remaining branches. Banks will also waive the monthly account-keeping fee if you keep a minimum balance of around $500. But for many people this isn't a feasible option.

If you don't qualify for any of the above, be prepared to explore other financial institutions. As the table on transaction fees shows, credit unions and building societies scrub up well. Their accounts have no monthly account-keeping fees and offer generous transaction limits.

The Australian Consumers' Association's policy and public affairs manager, Mara Bun, says fees on transaction accounts have increased by between 49 and 171 per cent over the past three years, depending on whether you have a high or low transaction pattern.

"As interest rates become more competitive, fees are an easy way for financial institutions to recoup their competitive costs," she says. "As a result, we are seeing a whole range of fees and charges introduced on every product."

Bun says bank profits are lined with captive fee income. The major banks generated $3.5 billion in fees this fiscal year, she says, up $650 million from a year ago.

"On the one hand we've seen a reduction in nominal interest rates, and at the same time an improvement on their bottom line profitability," she says. "The banking sector has out-performed just about every other sector."

Craig Williams, a banking analyst at Merrill Lynch, agrees the focus of the banks has moved from interest income to non-interest income. "There's been a strong push for the past couple of years," he says. "Australian banks remain behind their international peers. Part of the drive behind what they're doing is catching up in this regard."

News such as this might thrill shareholders, but it doesn't impress customers. Gerard Thomas, policy officer at the Australian Pensioners' & Superannuants' Federation, says elderly people are reluctant to use ATMs for security reasons and are now hit by branch closures.

"Members are telling me that bank fees are going through the roof on many accounts," he says. "Our concern is that low-cost banking is getting harder and harder to find. The banks still have a lot of work to do to meet the needs of older customers."

HANDY HINTS FOR LOW-COST BANKING TRANSACTION ACCOUNTS

"Know how to achieve free banking," says Cannex's Cassandra Williams. "Bundling products with one institution can save you fees. NAB will offer credit cards with no annual fees and no transaction fees on your accounts if you have a home loan. CBA recently introduced a rebate system that gives back 50c for every $500 you have in lending or deposits." Some banks, such as NAB, waive fees if you are a shareholder.

Budgeting and planning ahead is essential, says MarketFaxts' Steven Dooley. Rather than lots of little withdrawals, make large ones. If you use EFTPOS while shopping make a withdrawal at the same time. It's counted as one transaction.

Find out how your institution treats free transactions. Does it automatically count the most expensive ones first, as Westpac does? Or are they counted on a first-come basis? If that's the case, Williams says to make your most expensive transactions of the month first.

John Hall advises you to maximise the use of your credit card to reduce the number of transactions. "It's a way of avoiding fees and it's very economical," he says. But pay your account in full by the due date.

Other banks' ATMs aren't included in free transactions and cost more to use, so don't. And be on the lookout for additional charges. If you are overdrawn, the penalties can be up to $10 plus interest for exceeding your balance by even a couple of cents.

Williams says you should tackle the home loan first and then the rest. "If you are happy with the mortgage, other products should fit in with that," she says. "Link all your accounts to telephone banking and do all your banking on it. It's more cost

efficient and less time consuming."

CREDIT CARDS

If you want a credit card for convenience and are likely to pay off the debt in full each month, look for one with a generous interest-free period. If you are not going to meet the debt, opt for a card with a low interest rate.

Most institutions will waive or reduce annual fees if you have other business with them, such as a home loan, or spend above a certain amount on the card each year. ANZ reduces its card fees if they are linked to a transaction account - $21 instead of $25.

If you make a cash advance, interest will be charged from day one - even on a card with interest-free days. Unless you pay the entire balance, interest will continue to accrue. "If you have a debt of $100 which is still in the interest-free period and you make a cash advance of $20 but repay it the following day, your debt will be reduced to $80 and you will still pay interest on the $20 till the entire debt is paid in full," Williams says.

Establish how interest is calculated if you make a late payment on a card with interest-free days. Interest is usually backdated to the original purchase date, with new purchases getting caught in the interest net until the debt is paid in full.

"This may occur even if you make a partial repayment," Williams warns. "If you make a purchase on day one of your statement cycle, and end up with a balance of $1,000 which you pay a day late, you pay 56 days' interest on $1,000. If you made a repayment of $500 on the due date, you may still pay interest on $1,000 for 56 days. This is the worst-case scenario, which is how NAB calculates interest. The other major banks vary, with some charging interest from the statement or due date and only charge interest on the amount outstanding."

HOME LOANS

Dooley says the application fee is designed to cover the set-up cost and administration costs of the lender. "They may or may not include valuation and legal fees," he says. "Always check what fees they do and don't cover." Many lenders currently waive application fees for new borrowers.

Also be aware application fees may not be refunded if you do not proceed with the loan. Get the institution to list all the fees and charges before committing yourself.

Williams recommends you save at least 20 per cent for the deposit. "If you need to borrow more than 80 per cent of your property value you will be liable for mortgage insurance."

And ask what fees and charges apply to the bells and whistles on the mortgage. Redraw can help you reduce home loan interest costs, but be aware that fees can be as high as $50 each time.

If you are contemplating a split loan, Williams suggests you ask about other costs such as additional ongoing fees per loan and extra application fees. Before switching to a different product, investigate switching costs. This may be a cheaper option than an application fee on a new loan.

THE MAJORS' BEST V THE REST
   VARIABLE MORTGAGES - BASIC AND STANDARD
   Company                         Prodcut name                         Rate
     Fee     AAPR
   ANZ Bank                        Money Saver Home Loan       5.99        $8.00
    6.19
   Commonwealth Bank       Economiser Home Loan          6.15         $8.00
6.35
   St George Bank               Great Aus. Home Loan            6.15
$8.00    6.36
   Colonial State Bank          Rate Saver Home Loan           6.15        $8.00
     6.38
   Westpac                          First Option Home Loan           6.19
 $8.00     6.39
   National Australia Bank   Standard variable                    6.70
$5.00      6.87
   NSW Home Loans           Home Truth Loan                     5.65
 -        5.82
   IOOF                                Flexi Trust Fast Track              5.84
            -        5.94
   Resi Home Loans            Standard variable                    5.85
    -        5.95

    Wizard Mortgage Corp    Wizard Direct                           5.85
     -        5.95
   AIMS Home Loans           AMIS variable                          5.85
     -         5.96
   Mortgage House              No Frills Home Loan                 5.85
    -         5.97
   Note: Ranked by AAPR
   CREDIT CARDS WITH INTEREST FREE DAYS
   Company                         Prodcut name                         Rate
     Free days   Annual Fee
   National Australia Bank** Bankcard Free Days             15.25             25
              $18.00
   Westpac                          Bankcard/Mastercard/Visa   15.40
 25              $18.00
   Colonial State Bank          Bankcard/Visa Free Days     15.95             25
              $20.00
   Commonwealth Bank       Bankcard/Mastercard/Visa   15.10             25
        $22.00
   St George Bank               Visa Free Days                      15.00
      25              $30.00
   ANZ Bank                        Bankcard/Mastercard/Visa    15.45
 14              $22.00
   RAMS Mortgage Corp      VisaCard 55 Free Days         15.95             25
           $20.00
   American Express           American Express                 13.85
 25              $25.00
   AMP Banking                    AMP Credit Card                    13.85
       25              $25.00
   HongkongBank                 Universal Mastercard            15.10
  25              $27.00
   Citibank                             Visa/Mastercard Free Days  16.95
     25              $30.00
   BankWest                         Visa/Bankcard                       14.40
          10              $24.00
   Note: Ranked by free days and annual fee. Number of free days is minimum
guaranteed by the institution.
   ** National have a late payment fee of $20 for failure to pay minimum monthly
 repayments over $100 within 30 days of statement issuance. Minimum monthly
repayments are generally 3.3% of amount on credit card
   THE MAJORS' MAIN TRANSACTION ACCOUNTS V SOME OTHER ALTERNATIVES
   Company                          Account                                 No.
of free trans.
   ANZ Bank                         Access Flexible Option          8 (max 2
OTC)
   Colonial State Bank           State All-In-One                     4 ATM, 4
EFTPOS, 4 tele
   Commonwealth Bank*      Streamline Account                5 (max 2 OTC)
   National Australia Bank    National Flexi Account            8 (max 4 OTC or
chq)
   St George Bank                Day to Day Account               8
   Westpac                           Classic Account                    8, 12
tele enq
   Maitland Mutual BS           Cheque Account                   All free
   Greater BS                       Access Account                   All free
   Members Australia CU      At Call Account                     22
   Holiday Coast CU             Better Access AC                  22 (max 4 OTC)
   NSW Teachers CU           Access Account                   40/quarter
   Metway Bank                   Action Account                      8 elec, 4
OTC, 30 tele enq
                                          Monthly   Base fee  Own ATM   Other
ATM    EFTPOS   Cheque  Counter Telephone
   Company                   base fee $   waiver $   fee $            fee $
        fee $        fee $       fee $     Trans $
   ANZ Bank                          4.00        500         0.50
1.25               0.40         0.40        2.50        0.40
   Colonial State Bank           '4.00        500         0.50             1.25
              0.40         0.75        2.00        0.40
   Commonwealth Bank*       2.00         n/a         0.45             1.00
         0.45         0.45        1.50        0.20
   National Australia Bank     4.00      1000         0.50             1.25
          0.50         1.00        2.00        Free
   St George Bank                 2.50        500         Free             1.50
              0.40         0.40        1.50        n/a
   Westpac                            4.00        500         0.65
1.00                0.65        0.65         2.00       0.65**
   Maitland Mutual BS             nil            n/a         Free
Free               Free        Free        Free        n/a
   Greater BS                         nil            n/a         Free
  Free               Free        Free        Free        n/a
   Members Australia CU       nil            n/a         1.20             1.20
              Free        0.35        Free         n/a
   Holiday Coast CU               nil            n/a         0.70
1.50                0.50        Free        1.25         Free
   NSW Teachers CU            nil             n/a         1.00             1.00
               1.00        1.00        1.00         Free
   Metway Bank                    nil             n/a         0.50
1.00                0.50        1.00        1.25         0.50***
   Note: Other institutions chosed by base fee and then number of free
transactions
   * Rebate option also available
   ** 65c per telephone enquiry, $2.00 for staff assisted
   *** 25c per telephone enquiry
   Source: CANNEX

© 1998 Sydney Morning Herald

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