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Bank fees

You could easily be paying your bank hundreds of dollars a year in fees - and it's money you probably don't need to spend. Our guide shows you the smart ways to cut your bank fees.

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Account types

Everyday accounts

For everyday (daily use) accounts, most banks offer a “flat” fee that covers account maintenance as well as all your transactions. A bank’s also more likely to offer you a better deal on your on-call account fee if you have a mortgage above a certain size.

Without a mortgage
Your account fee may be reduced or even waived if you do all your banking online or if you keep your account balance “healthy” (above a specified level). Ask your bank whether it offers this.

With a mortgage
Nearly all banks offer fee rebates or waive them altogether if you have a mortgage with them. For example, Kiwibank will waive transaction fees if you hold a mortgage with them. SBS Bank customers with a mortgage get the first 20 withdrawals each month for free.

However, as many everyday accounts have low (or no) fees already, this isn’t such a great deal.

Savings accounts

These are designed specifically for customers to maximise their savings. This means most banks have no account-maintenance fees on savings accounts.

Withdrawal fees are likely to apply to savings accounts. The fees range from $1 to $5 per transaction, depending on how the withdrawal is made. Interest can be paid on your account in several ways. There are "flat" rates currently ranging from 0.05 to 1.85%, and "tiered" rates where higher levels of saving are rewarded with higher interest rates. These "tiered" rates can start as low as 0.1% and move up to around 1.5% for accounts paying interest on the full balance. Some accounts pay interest on a stepped basis and rates can be up to 2.5% for their top tier (see "Think about interest rates").

There are also accounts which pay a flat base rate ranging from 0.05 to 0.75% and a bonus rate (0.6 – 2.35%) if no withdrawals (and/or a deposit) are made each month. In most cases, if you withdraw money you’ll lose the opportunity to get bonus interest. The Cooperative Bank (formerly the PSIS) and BNZ allow one withdrawal before you lose the bonus rate for the month.

Student accounts

Tertiary students are the high earners of the future – so banks are keen to lure them in early.

Most important here are low fees and access to cheap (or interest-free) credit.

Almost all the banks offer special “tertiary student accounts” with no monthly account-maintenance fees. The banks that don’t offer these are BankDirect, HSBC, TSB Bank and SBS Bank.

A credit card may be tempting but its high interest rate means debt can build up fast. An interest-free overdraft is a better alternative: it allows you to borrow up to a set amount without having to pay interest. Most banks offer this as part of a student account – although you’ll have to meet the bank’s criteria for lending (it’s not automatically granted) as well as paying a monthly overdraft fee.

Occasionally students may need to borrow more than their interest-free overdraft can allow – perhaps for bond fees or unexpected study costs. It’s a good idea to check how much your bank will charge for this.

Tip: The interest “freeze” on your overdraft is likely to end with your studies.

Superannuitant accounts

ANZ, BNZ, The Co-operative Bank, Heartland Bank and Westpac offer “superannuitant” accounts with no maintenance or transaction fees if you have your NZ Super or pension paid into this account – although penalty fees and fees for “special” services will still apply if you incur them. SBS Bank and Kiwibank also offer fee waivers for over 65s but don’t require super to be paid into the account.

ASB gives a fee exemption for seniors on its Omni account for the first $20 worth of transactions each month provided their Super is paid into the account. There’s no account maintenance fee on Omni accounts.

Bank Direct, TSB Bank and HSBC are the only banks that don’t offer a fee waiver for superannuitants. If you’re with one of these banks, ask what it can do for you – and switch banks if it won’t offer you lower fees.

Penalty and service fees

Dishonour fees – and “penalty” fees in general – are the most controversial bank fees. This is because their size doesn’t always correspond with the cost of what triggers them.

In the past banks have argued that the purpose of these fees is not just to recoup costs – it’s also to deter customers from certain behaviour. But in its investigation of late-payment fees on credit cards, the Commerce Commission didn’t accept this argument: it said there was no evidence such fees work as a deterrent. It also considered that late-payment fees which generated profit (rather than simply recovered costs) did not comply with the Credit Contracts and Consumer Finance Act.

Standard dishonour fees range from around $2.50 to $25. Honour fees – where the bank completes an automatic payment for you when you don’t have enough in your account and charges you for this – have disappeared. However, unarranged overdraft fees – incurred when you exceed your available funds or your overdraft – seem to have taken the place of “honouring”.

Banks have reduced the fees charged for late payment of credit cards. These were between $20 and $25; they’re now between $3 and $15. BNZ, Westpac, ASB and BankDirect lead the charge when it comes to dishonour fees on cheques and electronic payments: they charge a very attractive zero. All the other banks charge a fee of some kind.

Avoiding fees

Many people can avoid paying monthly base fees and transaction fees – you just need to know how.

  • Lots of business. Some banks will chop the fees on your day-to-day account if you have a lot of other business with them, such as a mortgage, term deposit or managed fund investment. The level of business needed to get the fees to zero varies with the bank.

  • Certain revolving credit mortgages. With these home loans, your income is credited directly into the home loan account, which helps reduce the interest bill and pay the loan off faster. You also use this account to do your day-to-day banking.

  • High balance accounts. Most of the banks have at least one day-to-day transaction account that has no base or transaction fees if you keep a minimum balance of, typically, $4000 or $5000, or if you keep your transactions below a certain number each month. Most of these accounts pay interest on the balance.

  • Superannuitants. If you're getting New Zealand Superannuation you shouldn't be paying monthly base fees or transaction fees: a lot of banks waive them if you have your super payments direct-credited into your account. You may need to remind the bank about this.

  • Children and students. If you're under 19, in tertiary study, or you've graduated within the last two years, you'll be able to find a fee-free bank account from most banks. Working people under 30 can also find some good deals. Check our bank fee calculator below for details.

  • Think before you whip out your card. Do you pay an eftpos fee? The fee you pay for each eftpos transaction may seem small. But it soon racks up.

It also pays to know which types of payments incur fees. It may be that you pay a fee every time you use your eftpos card, but nothing when you use your Visa or MasterCard. Usually the retailers pay a small percentage when you use credit cards – that's how the card providers make their money. But if you're using your credit card in preference to eftpos, then you'll need to pay it in full and on time every month or you'll be hit with high interest.

  • Save money online.If you want to save money on fees, then using the internet makes a lot of sense. Certain charges are significantly reduced or free online.

Reducing fees

If you can't take advantage of our ways to eliminate bank fees, you may still be able to substantially reduce the amount you pay.

Try haggling

The idea of haggling with a billion-dollar company like a multinational bank might seem odd, but it can pay off. For example, if you're going to take out a big mortgage with a bank, ask what else it can do to sweeten the deal. For starters, ask for no annual fees on your credit card.

Here are some of our members' experiences:

  • "We were paying over $250 a year in bank fees. We had money invested with them, so complained. Now most of it is wiped."
  • "They gave me a rate half a percentage point below the market rate with negotiation – saved me changing banks."
  • "I rang to say I was switching my mortgage to Kiwibank, and now they have given me a discount on our floating rate and account fees."

Low-cost or free accounts

Some banks offer accounts free of charges if all transactions are made electronically or online. Some accounts aren't free but are close to it, charging a flat fee for unlimited numbers of transactions.

Fees you can't avoid

You may be able to drastically reduce or eliminate ordinary day-to-day bank fees, but with most banks there are some fees you can only avoid by not using the service.

  • If you use another bank's ATM machines, you could face hefty charges. Use your own bank's machines, or get cash out with eftpos purchases.
  • You'll usually pay fees for using ATMs or eftpos facilities overseas.
  • You'll sometimes face one-off charges for setting up or altering services such as automatic payments.
  • You'll also be charged fees if the bank has to bounce one of your cheques or electronic payments.

Bank smarter

If you change the way you bank, or shop around for an account that better suits your way of banking, it's highly likely you'll be able to keep more money in your pocket.

  • First up, check the fees on your existing account, and then work out how to avoid them. For example, writing a cheque for cash might cost $3 but getting cash out with an eftpos purchase would cost just a 35 cent fee. That's a no-brainer.
  • Avoid the manual model. Most banks charge hefty fees if you write a lot of cheques or do business in the branch. If you haven't signed up for internet banking yet, you're missing an easy way to cut fees. Make an appointment with a personal banker at your local branch, and ask them if you've got the best accounts for your circumstances. Put our bank fees calculator (below) to the test. Most banks have a choice of accounts, and you may not be in the best account for you.
  • Switch banks if you find a better deal elsewhere. Often banks offer new customers a better deal than existing ones.

Overdraft fees

If you need an overdraft, arrange one with the bank. There will usually be set-up and monthly fees, but it will work out less costly than regular dishonour or honour charges. If you feel the bank has charged fees unreasonably, talk to them. Many consumers tell us they have been able to get some charges reversed.

Check your balance regularly, especially if you think you may be sailing close to the wind. Signing up to internet banking lets you check balances at any time.

Think about interest rates

When you’re shopping for better deals, keep your focus on your overall banking costs. Savings you get on bank fees may be whittled away if you have to pay a higher interest rate on your mortgage or you give up a good interest rate on your savings.

Understand how interest works

If you keep a high balance in your account, you may only consider the rate of interest paid, but there are 3 other issues to consider too.

  • How interest is calculated. Some accounts calculate interest on the daily balance, but others calculate it on the minimum monthly balance. In the latter case, you may end up receiving less interest.

Say you have $500 in an account for 29 days in the month, but only $10 on one day. If interest is calculated on the daily balance, you'll be paid 29 days' worth of interest on $500 and one day's worth of interest on $10. But if interest is calculated on the minimum balance, you'll be paid 30 days' worth of interest on only $10!

  • How often interest is credited to the account. The more often interest is credited, the more it will compound (that is, you'll earn interest on interest). Whereas some accounts credit interest monthly, others only credit it quarterly or yearly.

  • Whether interest is paid on the full balance or marginal tiers. This is only relevant for accounts that have a tiered interest rate structure, for instance an account which pays 1% on balances up to $1000 and 2% on balances higher than this. On such accounts, interest may be calculated on the full balance or on marginal tiers. The full balance calculation is better.

Assume the account has $1500 in it. If the account pays interest on the full balance, the accountholder would be paid 2% on $1500. If the account pays interest on marginal tiers, the accountholder would be paid 1% on $1000 and 2% only on the remaining $500.

Switching banks

Switching banks can seem a big hassle. You've got to get your wages or benefit credited into a new account, you may have to transfer your mortgage, and there are all those other payments that you've set up to come out automatically – things like power, phone, rates etc.

You’ll also need to go through the process of getting new eftpos, credit cards and PINs.

When you’re switching banks you need to keep an eye on both your old and your new banks to make sure they do things correctly. Here’s our advice on handling the process.

1. Before you switch, ask your bank to do better

Ask your existing bank to look for ways to cut your costs. Make an appointment with a personal banker at your branch to do this. Would it help if you changed or combined accounts, or consolidated your debts? Once you know how much you could save, you'll have a benchmark to help you compare your bank with others. And it may save you the trouble of having to switch at all.

2. Check your accounts

Look at a few months’ of transactions, and work out how you use your bank. How many transactions do you make each month? How many times do you use eftpos, ATMs, cheques, over-the-counter deposits and withdrawals? How many direct debits and automatic payments do you set up? How low do your balances fall? Are you earning interest from any of your accounts? Gathering this information will help you figure out what's causing your fees to mount up.

3. Shop around

Use our resources to help you work out possible accounts to move to.

Then check the banks’ websites. Remember, you don't have to get all your banking services from one bank. For instance, don't be put off an account just because it doesn't have a credit card – you could get one elsewhere.

4. Set up the new accounts

You can apply for a new transaction account over the phone, online or by going into a bank branch. It may help to go into a branch if you're not sure exactly what you want. A personal banker can talk through your options. When you go to the branch, take them a breakdown of how you use your accounts.

If you open the account without visiting, you’ll still need to go in at some point to sign documentation, identify yourself and be issued with a PIN number. Remember to take in appropriate ID and your IRD number.

5. The switch

You may be able to use your new bank’s switching team to open your new accounts, move your outgoing payments and close your old accounts. Or you can do it all yourself.

Open the new account before you close the old one and keep both accounts running for a few weeks. This gives you the chance to reorganise outgoings, including direct debits and automatic payments, and to make sure your wages are going where they should.

  • Direct debits: You’ll need to phone each company (phone, power, etc) and get them to send out a new direct debit form. Allow plenty of time for this to come through. After filling out the forms with the details of your new bank, return them to the companies debiting the money.
  • Wages: Don’t forget to tell your employer your new account details.
  • Other income: Make sure the details are changed for any money you receive from investments and other automatically-paid sources of income.
  • Automatic payments: Remember to re-set automatic payments with your new bank and make sure they go out on the correct dates. You can do this yourself through phone or internet banking or through your branch (for a larger fee).

6. Closure

Leave enough funds in your old account to cover any fees. Once you're sure everything has worked out, close the account and cut up any old cards. Switching banks can often be more complicated and expensive if you have a mortgage. Before you switch, ask your bank whether there are any fees for transferring/cancelling a mortgage.

Using the banks’ switching teams

All of the major banks have switching teams that will move your automatic payments, direct debits and internet banking bill payment details to your new bank for you and close off your old accounts.

Before 2010 there were no clear rules setting out exactly how the banks must co-operate with each other when transferring a customer’s payment details. So, one bank could have held up the process if they were losing a customer to another bank. Now there are rules the banks have agreed to follow.

Payments NZ took over the governance of payments clearing and settlements from the New Zealand Bankers Association in December 2010. It’s now in charge of setting and overseeing the rules for how information about automatic payments, bill payments and direct debits are exchanged between banks when a customer switches.

Together with the major banks (ANZ, ASB, BNZ, Citibank, Kiwibank, HSBC, TSB and Westpac), Payments NZ developed standards and processes to make it simpler and faster for customers to switch banks. For instance, there’s now a standard form that customers fill in, authorising their new bank to contact their old bank for the details of their accounts and regular payments.

It doesn’t matter whether the bank is gaining or losing a customer – they must follow the rules and work with the other bank to change payments over in a timely manner.

How it works
You talk to your new bank and arrange what accounts you want to open. Your new bank will then give you a “Switching Bank Request” form.

You fill in the form and give it to your new bank. The form details:

  • Your old bank’s name and your account name.
  • Your old account numbers and if there are automatic payments, bill payments and direct debits linked to them.
  • The dates to cancel existing payments and close your accounts at your old bank.
  • Your signature authorising your old bank and new bank to exchange information about your payments, and authorising any places you have direct debits with to use your new accounts once they’ve had written notice from your new bank.

The old bank will then advise the details of your regular outgoing payments. The new bank will manage the entire account opening and payments switching process for you, including reloading your existing payment authorities against your new account.

How long does it take?
While the transaction and savings accounts at your new bank can be open within a couple of days, it can take up to 14 days to finish switching the payments and close your old accounts.

The Payments NZ rules give the old bank 5 business days to respond to the new bank with your payments information after receiving the switching form but they still may not do this until day 5. Your new bank then has to have time to set up the new payments.

Payments NZ believes the majority of information exchanges are handled within the prescribed 5 business day turnaround period. However, it doesn’t collect any figures on this. The banks say most information exchanges are happening within the 5 days.

It may also take longer than 5 business days for what the banks call an “initiator” to respond. An “initiator” is a business or service provider, like a power company or telco, which you have a direct debit set up with. Your new bank will let them know your new account number.

Account closure may take longer than 5 days. If an account is overdrawn it’ll need to be cleared first, or there may be cheques that haven’t been processed yet.

You can choose to take longer to close your old accounts and have balances transferred. For instance, you may know you’re going to be receiving money at some point in the future and want to keep your old account open until that has happened.

What’s not covered?
Direct credits are not handled by the switching teams. You’ll have to advise your employer or anyone else that deposits money to your account of your new account details. BNZ, Kiwibank and Westpac have a letter template that you can use and Westpac offers to contact your employer for you. If you’re a landlord don’t forget to tell your tenants. If you receive money from Work and Income or IRD, let them know.

While the use of the switching teams is free, you may have to pay any fees for setting up the automatic payments and direct debits. Check with your new bank.

Where to find more information
The banks’ websites provide information about their switching process.

BNZ and ANZ have information for doing the switch yourself or for using their switching teams. BNZ also has a handy checklist you could use and offers to refund payment establishment fees for the first 3 months, whether you do the switching yourself or use its team.

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Things the bank won't tell you

Banks make money from people who are in debt. In fact if you're $250,000 in debt through a mortgage and maybe a personal loan and credit-card debt, then you're a better customer for a bank than the person with $30,000 cash in their account. The more you spend, the more interest the bank earns from you. And if you're prone to cheques bouncing here and there or if you don't pay your credit card bill off in full every month, then you're really the bank's best friend - unless you stop paying off your personal debt and the bank loses its money.

It's thinking of its bottom line, not yours. If you're offered a review or get a call from your "personal banker", then the chances are they'll try and sell you a new product. Usually it's insurance they want to sell you. It's easy money for them. You're already a customer and they're just extracting as much capital out of you as they can. It may well be that the product on offer is good value. But you need to ask yourself 2 questions: Do you need the product at all? And is the product offered by your bank the best value?

When they open new accounts with flash savings rate, they're looking to attract new customers. The rates on offer are called "headline rates" because they're so impressive they catch the headlines. But it's the usual practice for banks to quietly reduce those rates or fail to increase them when interest rates go up. The banks can't afford to put all of their customers on these new high-flying rates - and they don't tell you unless you ask.

Well ... as long as you don't write too many. Providing there's no fraud involved, your bank earns big bucks every time a cheque bounces. Not only do they sock you with a fee for the bounced cheque, you'll pay a higher rate of interest if you go over your agreed overdraft.

Banks don't actively encourage customers to set up direct debits to pay off their credit card. Why should they? They can't earn interest on your credit card if you pay it off each month. But if you do use direct debit, make sure your account's well cashed up on debit day.

Banking advisers and personal managers may get more points towards a target bonus by selling some products than from others. This flies in the face of customers' belief that their banks are providing the best advice for them.

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