As the federal government pushes to reduce bank fees, a report from North Economics states that Canadians are overpaying by billions of dollars annually (over $7.7 billion annually)
The report by the Alberta-based firm compared fees at the Canadian Big Five banks – RBC, TD, BMO, CIBC and Scotiabank – with what consumers face in the U.K. and Australia. It shows Canadians pay much more monthly for bank accounts and fees for non-sufficient funds, overdraft charges, and accessing ATMs at competitor banks. North Economics managing director Alain de Bossart looked at how Canadian and British non-interest retail bank profits compare with their deposits to understand how much more Canadians pay. This measure excludes interest-based profits from mortgages and other loans.
Understanding Bank fees
Bank fees are an unavoidable part of banking for personal and commercial clients, evidently present at every turn. Banks charge various fees to cover their services, whether maintenance fees on deposit accounts or transaction charges. These fees can include penalties for bounced checks or charges for conducting specific transactions. While some fees apply universally to all customers, others might be subject to waivers under certain conditions. For instance, customers maintaining long-standing relationships and multiple accounts with a bank may qualify for fee exemptions. Transparency regarding bank fees is paramount for financial institutions. Detailed fee schedules are readily available on bank websites and in informational handouts. Customers must carefully review these disclosures to avoid any surprises. Bank fees are typically listed on paper statements, passbooks, or through online banking portals. Most fees are posted at the time of the transaction, while others, like account maintenance fees, are added at the end of each month. Understanding bank fees and their implications empowers customers to make better financial decisions and manage the banking ecosystem effectively.
Common Types of Bank Fees:
Not all banks impose the same fees; some pile on a few odd ones. These are eight of the most common methods used by banks to deduct money from their customers:
- Monthly Account Maintenance Fees: These fees resemble a subscription charge for keeping your account active and maintaining access to banking services. They’re typically charged monthly and vary depending on your account type and the services included. Certain banks offer the option to avoid monthly fees by consistently maintaining a minimum balance in your account.
- Non-Sufficient Funds (NSF) Fees: Imagine trying to make a payment or withdraw money, but there’s not enough cash in your account to cover it. In such cases, banks may charge you an NSF fee as a penalty for attempting to spend beyond your means. It’s like a gentle reminder to keep track of your finances.
- Overdraft Fees: Banks impose overdraft fees when transactions surpass the available amount in a customer’s account. Since these costs are charged for each transaction that overdraws the account, a fee is associated with each overdraw. Likewise, certain banks may charge a daily fee for each day the account is left overdrawn. These fees, which can reach $50, unfairly harm Canadians who might struggle to make ends meet or don’t have overdraft protection when their bills are due.
- Out-of-network ATM withdrawal fees are charges incurred when using an ATM that does not belong to your bank’s network or a sizeable third-party ATM network. Transactions made at in-network ATMs are free of charge. However, if you withdraw cash from an out-of-network ATM, your bank may impose a fee per transaction. This fee can accumulate significantly if frequent withdrawals are made. Moreover, in addition to your bank’s fee, the owner of the out-of-network ATM may charge a separate fee, resulting in dual charges for the same transaction.
- Wire Transfer Fees: Sending money electronically has become incredibly convenient, but it’s not always free. Wire transfer fees are charges financial institutions impose for the electronic transfer of funds from one account to another, typically between different banks or financial entities. These fees vary among banks and can depend on various factors such as the destination, currency exchange rates (if applicable), and the transfer speed.
- Foreign Transaction Fees: A foreign transaction fee is a charge imposed by credit card companies for purchases made in a foreign currency or transactions processed outside your home country. While it may seem like an insignificant addition to your overall expenses, failing to understand the implications of this fee can lead to significant and unnecessary costs.
- Card Replacement Fees: Losing your debit or credit card can be stressful, and getting a replacement comes with a fee. Banks typically charge a fee for issuing a new card, whether it’s due to loss, theft, or wear and tear.
- Account Closing Fees: Closing your bank account may seem simple, but some banks may impose a fee, especially if it’s closed shortly after opening or if certain conditions aren’t met. It’s like a parting fee for ending the banking relationship.
Strategies to Avoid Bank Fees:
- Utilize Cash Back Options at Stores: When making purchases with your debit card at select stores, seize the opportunity to request “cash back” at the register. This allows you to add extra funds to your purchase, thereby obtaining the cash you require from your bank account without incurring ATM fees. It’s essential to note that each cash-back transaction contributes to your total transaction count, typically capped at 25 transactions per cycle.
- Establish Routine Banking Habits: Consistency can be advantageous in financial matters. For instance, if you are a TD customer, consider locating and utilizing ATMs affiliated with your bank instead of resorting to the nearest ATM when needing cash. This will bypass ATM fees and allow you to access your funds conveniently.
- Explore Digital Banking Alternatives: Digital banking solutions encompass various services provided by financial technology (fintech) companies, including online banks, mobile banking apps, and digital payment platforms. These alternatives often offer lower or no fees for essential banking services than traditional banks. One of the key advantages of digital banking alternatives is their cost-effectiveness. Since they operate primarily online and have lower overhead costs than physical branches, digital banks can pass these savings to customers through reduced fees or higher interest rates on savings accounts. This can result in significant savings for consumers, especially those who frequently incur fees at traditional banks. You can also use personal finance management tools to track your banking fees and manage your finances more efficiently.
- Optimize Withdrawals to Minimize Fees: Many bank accounts limit the number of transactions allowed before additional fees apply. Strategize your cash withdrawals to mitigate the risk of exceeding this limit and incurring extra charges. Try to withdraw more considerable sums less frequently, reducing the need for multiple transactions and consequently lowering associated fees.
Promises made by the federal government
Promises have been made in this concerning manner, but action has yet to be taken. Among the government’s initiatives on bank fees are the following promises:
- A promise to reduce NSF fees: The Federal Government announced measures to reduce bank fees, focusing on NSF fees, in its fall economic statement released in November 2023. Although the generic commitment admits that the costs significantly impact Canadians with lower incomes and are unjust to them, it does not yet outline how the government will reduce the fees.
- A promise of more low- and no-cost banking options: The government has also promised more low-cost and no-cost banking options, assigning the Financial Consumer Agency of Canada to work with the banks on making those options available. The plan has few updates or specifications, so the government’s intervention will produce meaningful price reductions for Canadians. The Financial Consumer Agency of Canada (FCAC) monitors banks and other financial firms to ensure they treat Canadian consumers fairly and safeguard their interests. They oversee how these companies manage their services, products, and payments. Meanwhile, the Department of Finance and FCAC are gearing up to implement new restrictions on NSF fees, enhance access to affordable accounts, and broaden eligibility for free accounts. If necessary, the government will engage in discussions with banks and the Canadian Bankers Association to facilitate these reforms.
- A single body to handle complaints: The Ombudsman for Banking Services and Investments (OBSI) has been appointed as Canada’s banking sector’s single external complaints body, effective November 1, 2024. Three of Canada’s Big Five banks have opted to use a private third-party company to handle complaints, prompting concerns about whether their dispute resolution process is genuinely impartial and in the best interests of Canadians. While removing the banks’ choice in who investigates complaints is likely beneficial, some question whether the OBSI still lacks the teeth it needs to have a meaningful impact. The organization isn’t a regulator and doesn’t have a mandate from the Federal Government, meaning it doesn’t have the authority to enforce its recommendations.
The Bottom Line
While the government has promised action on unfair banking fees, it has yet to announce details on its plan of action with no details available on its plans – and a debatable track record of battling telecom industry fees – there’s little evidence that meaningful change will come soon. Until those details emerge, the best way to save money on banking fees is to implement strategies such as utilizing cash-back options, establishing routine banking habits and optimizing withdrawals, which can help minimize unnecessary fees. As individuals wait for real solutions, staying alert and informed is crucial to managing and avoiding paying too much in bank fees.
