Keeping bank charges to minimum

BANK charges are a contentious issue, and customers’ perceptions of banking fees are that they are high compared to international norms, extremely complex and never set out clearly for the consumer.

Lance Welshlund, a freelance music journalist, is one such customer. “I’ve never really given any thought to bank charges until recently. I’ve had a savings account for four years and when I decided to apply for a credit card, I began to wonder how I should manage my accounts in order to pay less bank charges.”

Lance is 30, single and has no dependants, and is about to buy a new car. He has two debit orders set up for savings policies, and his new car’s payments will also come off his bank account, but he pays for everything else with cash or by swiping his debit card.

“I pay for rent, food and entertainment with cash, and I’ve even had to pay back a R3 000 loan in cash. I don’t like to walk around with large sums, so I think I would like to start using internet banking,” he says.

“My last statement revealed that I paid more than R270 in bank charges in a month. I think I must be doing something wrong.”

Money Talk’s Paul Leonard says although all banks will have their own specials and cost structures, there are some ways to decrease what one pays in bank charges across the board.

“To begin with, a person’s spending habits are most important. Lance will need to control and monitor his spending habits, of which managing bank fees are a part,” he says.

Paul says Lance should use electronic banking as much as possible to reduce his bank charges.

“He can even download banking information into personal finance management software packages, for budgeting purposes. This is especially handy if he decides to enlist the services of a financial advisor.”

For payments such as rent, Paul says electronic funds transfers are the best solution because they are fast and cheap.

Paul explains that debit orders are for fixed amounts to be withdrawn from an account after the account holder has signed a permission form. Stop orders, on the other hand, are set up by the account holder to pay a specified amount to another account on a regular basis.

“If there are identical monthly payments Lance needs to make, stop orders are cheaper and more efficient than drawing cash to make those payments,” he says.

Cash withdrawals are a necessity, but Paul advises Lance to withdraw larger amounts at less regular intervals. “Drawing R1 000 every month will incur far lower ATM charges than drawing R250 every week,” he says. “Lance should also request that any payments made to him should be made electronically, not in cash, because cash deposits attract higher fees.”

Lance has heard that having his salary deposited into a credit card account and swiping for as many transactions as possible will reduce his bank charges.

“This is largely true,” says Paul. “Having a credit card account as his only account would be a sensible move, because currently he is paying the charges for every swipe of his debit card, while with a credit card the vendor pays the charges.”

Should Lance choose this route, he must make sure that any credit card account he opens will have all the functionality he will need, such as cash withdrawals, electronic payment capability and debit orders.

“Cash withdrawals are likely to cost about the same with a credit card account, so he could potentially close down his savings account in favour of a credit card account.”

Paul cautions that credit cards are only useful if the account holder has self-control.

“For everyday items like food, credit cards are great because swiping a credit card is cheap and easy. He will also be able to earn loyalty points in various programmes, which is a big bonus. However, it is very important that Lance settles the full balance every month.

“The same goes for stop or debit orders. Lance must make sure that he can honour all his payments each month, otherwise he will be left paying penalty fees for each payment that fails to go through.”

Lance has calculated that taking Paul’s advice will save him an estimated R200 in banking charges per month.

“This is fantastic. I can’t believe I didn’t know I was spending that much more than I needed to.”

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