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.
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.
These are designed specifically for customers to maximise their savings. This means most banks have no account-maintenance fees on savings accounts.
But there are some exceptions. HSBC charges an account-maintenance fee of $15 – unless you have a loan (over $500,000) or considerable savings (over $100,000). Westpac charges $2.50 a month on its Bonus Saver if your average monthly balance drops below $1000.
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 0.25 to 4.0 percent, and "tiered" rates where higher levels of saving are rewarded with higher interest rates. These "tiered" rates can start as low as 0 percent and move up to around 3.5 percent for accounts paying interest on the full balance. Some accounts pay interest on a stepped basis and tend to have rates around 4-5 percent for their top tier.
There are also accounts which pay a flat base rate ranging from 0.1 to 1.0 percent and a bonus rate (3.25 to 4.0 percent) 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.
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.
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.
In 2009 BNZ scrapped dishonour fees and the other banks cut theirs. Standard dishonour fees back then would have been between $20 and $35; now they average about $15. 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 also reduced the fees charged for late payment of credit cards. These were between $20 and $25; they’re now between $10 and $25.
BNZ leads the charge when it comes to dishonour fees on cheques and electronic payments: it charges a very attractive zero. All the other banks charge a fee of some kind.
Become a Gold or Silver member to find out how to avoid or reduce your bank fees.
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. It's a good idea to withdraw plenty of cash before the process begins, so that you're not caught short.
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 old statements, 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
First, use our resources to help you work out possible accounts to move to.
- Our interactive bank fee calculator (see below) lets you compare fees and find the best account.
- Our credit card calculators will help you find the best card and reward scheme.
Then check the brochures from the banks or their 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 can always 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
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).
Leave enough funds in your old account to cover any hidden 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.
If you're thinking of switching, there are many more options than just the big 4 registered banks. The most obvious competitors are Kiwibank, The Co-operative Bank (formerly the PSIS), TSB Bank and the ASB-owned online bank BankDirect. But thousands of New Zealanders also "bank" with building societies such as SBS Bank and credit unions such as the Credit Union Baywide. Many of these smaller organisations offer internet banking and even a limited form of credit cards.
Credit unions have a lot to offer. Their advantage is that they are co-operatives – and surpluses are returned to members through dividends, reduced fees, and increased interest rates on savings. The main drawback is the higher level of financial risk compared with the registered banks.