Watch: MoneySense – Bank Fee Breakdown – Presented by EQ Bank
Why do banks charge fees for everyday transactions?
Depending on the type of account you have and where you are, certain day-to-day transactions, such as sending an e-transfer or paying for an online purchase in a foreign currency, can lead to a charge on your account; or you will be billed a monthly flat rate.
In both cases, fees are a way to cover the costs of the banks (e.g. staff salaries, overheads for stationary branches, the administrator associated with the approval of a loan or a mortgage), but also a way of meeting the requirements of their shareholders. “The reality is that banks do just that,” says Mahima Poddar, SVP & Group Head, Personal Banking, Fair bank. “They are there to make money for their shareholders, and they have a responsibility to grow those profits quarter by quarter, and increasing fees is a perfectly normal way of doing that.” It is therefore not surprising that they are taking this step. According to the Canadian Bankers Association, 5% of the big banks’ revenues come from fees charged on everyday bank accounts.
Some banks waive fees if you have a certain amount of money in your account. Who is that useful?
Bank customers may be able to avoid fees if they have $ 4,000 or $ 5,000 in balance in their accounts. This is actually an advantage for the banks because the money customers put into these accounts has real value to them, explains Poddar; They are able to lend the same dollars to someone else and earn interest and other fees on that loan (although they will always keep the deposits safe and available when the depositing customer needs their money).
Poddar describes minimum balance as “a bit of a catch-22,” as adhering to it can lower banking fees for customers, but banks also count on being able to charge the full monthly fee to customers just a few dollars below the minimum. even one day a month.
As with bank fees, the minimum balance requirements have also increased at many major banks. Perhaps this reflects the fact that many high-income households increased their savings rates during the pandemic and therefore may not have fallen below their minimum balance, resulting in fewer fees. According to the Bank of Canada, Canadians have accumulated an average of $ 5,800 in additional savings by the end of 2020, and much of it sits on the bench. Lawrence Schembri, Deputy Governor of the Bank of Canada, stated in a presentation in March 2021 that “the total value of personal deposits with banks increased by $ 150 billion between February and December 2020.”
Not all banks charge fees
It is important to note that consumers’ daily banking fees have not been increased across the board. RBC, for example, has chosen not to make any changes, and while the National Bank has increased some fees, it is now offering a discount of up to $ 15.95 per month on banking packages to all of their customers aged 18-24, even if they are are not full-time students.
And there are challenger banks, like EQ bank and Simplii Financial, which have no fees at all. How is that possible when even challenger banks are companies with shareholders who need to be satisfied? Poddar explains that in the case of EQ Bank, this is because, like the big banks, they borrow money in their customers’ accounts, but limit their profits in favor of passing on savings to their customers.