Low Cost Banking Fees

We’ll just come right out and say it: Bank fees suck. But the truth is that for most of us, they are little more than an annoyance. Sure, no one likes having a few extra dollars pried away by multimillion-dollar banks, especially when those corporations are already earning interest on our life savings, our mortgages, our car loans, etc., each and every day. But for the most part, Canadians say they’re OK with the bank fees they pay. So why then, is the new low cost banking fee news important to Canadians.

You might wonder why Finance Minister Joe Oliver’s recent announcement that eight of Canada’s biggest banks have agreed to expand no-cost and low-cost banking fees and services to youth, students, low-income seniors and other vulnerable groups is such a big deal. After all, most banks already offer some reduced or no-fee services. The new guidelines, set to take effect in January, just push those services a little further. And, if you aren’t one of the estimated 7 million Canadians who’ll benefit from more low-cost banking options, this little change won’t affect you much. Or at all. But there are a few reasons why this is great news – and not just for low-income Canadians.

How will the low cost banking fee news help you?

1.     A Little Goes a Long Way

A study conducted by ING Direct in 2010 found that on average, Canadians spend $185 per year on banking fees. If your income falls around the $76,000 per year median, that represents about one quarter of one percent of your income. Heck, many of us probably spend more than that at Starbucks. But if your income falls below the poverty line in Canada, which Statistics Canada pegs at about $22,000 for a single person, that $185 looms a lot larger, eating up close to 1 percent of income. And, of course, the smaller the income, the less of it there is to go around for things beyond necessities. The new guidelines help ensure that free banking is available for those who can least afford to pay any fees at all.

2.     Banks Aren’t Made for the Poor

For the poor especially, a bank account is an essential tool. High-quality banking services can help people gain access to interest bearing accounts, financial advice and even low-cost borrowing (especially compared to other options like payday loans). But the reality is that banking can be expensive. Banks often provide low- or no-cost services for those who can maintain a certain amount in their chequeing accounts, or who have a certain amount invested with the bank. This creates an unlevel playing field when it comes to managing finances and – ideally – building savings over time. The new guidelines stipulate that there will be no extra charges for deposits, debit cards, pre-authorized payment forms and printed statements for those who qualify, and no minimum deposit is required. Now, those who can’t maintain a minimum deposit can still get a reasonable minimum amount of service without being nickel-and-dimed to death by fees.

3.     Banking Is a Profitable Business

In 2014, the overall profits for Canada’s six biggest banks exceeded $30 billion for the first time in history. In other words, banks can afford to give low-income earners a break. In fact, it might even do them good. In the United States, many banks began offering products geared toward low-income, “underbanked” individuals as way of boosting their clientele, their bottom line and their public profile. And it doesn’t cost much: The fixed costs for banking infrastructure are already in place, and the profitability that comes from low-income customers is already low.

4.     It’s a Way of Giving Back

The provision of basic banking services is a valuable public and community service. We may not have seen big public bailouts of Canadian banks during the financial crisis, but they have received support from the Canadian public – and probably will again some day in the future. Low-cost banking services are a way for banks to give back.

5.     It’s Good Publicity 

Banks love to maintain a good public image. So do governments. The government’s action in this area fulfills a 2013 Speech from the Throne’s commitment to expand no-cost basic banking services and to enhance access to other basic banking services. By signing on, Canada’s biggest, most profitable banks also get a low-cost boost to their public image. Everyone wins, including consumers.

6.     The Benefits Extend Beyond the Poorest Canadians

Maybe you can afford high bank fees, but the banks’ new agreement not only means no-cost services for the lowest income Canadians; everyone else can access those same services for $4 per month.

So what does it all mean?  When it comes to cutting bank fees, there are now more options for everyone. Plus, by bringing more attention to bank fees, this move could help bring them down across the board. Well, we can only hope, right?

About - David was initially drawn to accountancy because he was ‘good with numbers’. He has been an insolvency professional since 1993. Soon after he began to work with debt issues he discovered that the most satisfying part of his role was the ability to make a positive difference in other people’s lives. It is the person, not the numbers that continues to guide his approach toward helping others deal with debt issues.