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Banks compete on costs

Beware of transmission accounts marketed as best for low-income earners. Some of these accounts are “anything but cheap”.

This is one of the findings of the Solidarity Bank Charges Report for 2012, released last week.

Illustration: Colin Daniel. Credit: PF

“Transmission accounts such as Absa’s Flexi Account, Nedbank’s Transactor Plus and First National Bank’s (FNB) Smart account are often marketed as cheap accounts suited to clients with a low income,” the report says. But of the four transmission accounts analysed, “only Capitec’s Global One and FNB’s Smart accounts (not including the zero-monthly-fee option) are actually cheap”.

The Solidarity report – which compares the charges levied on personal bank accounts at Absa, Capitec, FNB, Nedbank and Standard Bank – found that Capitec is still the “cheapest” bank, followed by FNB, Absa, Standard Bank and Nedbank – in that order.

The report is the third annual report on bank charges by the Solidarity Research Institute (SRI), and for the third year in a row, Capitec’s Global One account has emerged as the least expensive of all bank accounts surveyed. The report says Capitec has managed to maintain its top position thanks to low charges and high interest on positive balances. Currently, Capitec pays interest of five percent on balances below R10 000 and 4.25 percent on balances exceeding R10 000.

“These [interest] rates are higher than those of many savings accounts at other banks,” the report says.

Across eight user profiles, the average bank charges on Capitec’s Global One account, without taking interest into account, are R55.50 a month, which is a 15.9-percent decrease from R66 in 2011. “By contrast, Nedbank’s cheapest account is its Savvy Electronic Account. This account’s average monthly bank charges are more than double those of Capitec and, in addition, this account’s charges have increased by 4.5 percent – from R107.79 to R112.61 between 2011 and 2012,” the report says.

According to the report, Capitec, FNB, Absa and Standard Bank all lowered their banking charges over the past year, while Nedbank’s charges increased marginally (see table: “Cheapest transactional bank accounts: 2011 and 2012”).

Although four of the five banks surveyed lowered their charges on “almost all accounts”, the Solidarity report highlights the effect of Absa and Standard Bank – “the most expensive banks in 2010 and 2011” – lowering their fees significantly. “They now offer stiff competition to FNB, previously the clear market leader with the popular ‘bundle’ type accounts.”

Paul Joubert, senior economics researcher at the SRI, attributes the lowering of bank charges to pressure from consumers, who are increasingly voting with their feet and switching banks.

The Solidarity report quotes the Ernst & Young 2012 Global Consumer Banking Survey, which revealed that 39 percent of South African bank clients had changed banks, and 13 percent indicated they were planning to. The percentages last year were 34 percent and 10 percent respectively. And the percentage of clients using more than one bank simultaneously has risen from 56 percent to 61 percent from 2011 to 2012.

Charl Nel, Capitec’s head of strategic communications, marketing and corporate affairs, says Capitec attracted more than 100 000 new clients a month over the past year. The bank now boasts 4.2 million clients.

Nel says Capitec’s offer has become a serious threat to the traditional role players. “The competitive environment will increase, but our services will remain aggressively priced in the future,” he says.

The Solidarity study compares the charges for personal transactional accounts only. In other words, it excludes products such as savings, investment and business accounts as well as accounts aimed at teenagers, students, young adults and pensioners.

“Broadly speaking, there are two types of transactional accounts: transmission accounts without an overdraft facility, and current accounts, which may offer an overdraft facility. Transmission accounts are generally marketed as ‘cheaper’ alternatives to people with a lower income. This type of account often is anything but cheap,” the report says.

The Global One transmission account from Capitec, the only type of account the bank offers, was the least expensive account in five out of eight user profiles (see “Solidarity’s methodology”, below).

“The average cost of a Capitec account on the eight profiles without penalty fees is R20.76 a month, with interest on positive balances included. This is R6.49 lower than last year, despite the fact that the interest rate on a positive balance dropped from 4.75 percent to 4.25 percent.

“If interest is not included in the calculation, the average cost on the same eight profiles would be R55.50 a month, R10.50 less than it was in 2011,” the report says.

In the following three profiles, FNB’s accounts proved marginally more cost-effective than Capitec’s Global One account:

SOLIDARITY’S METHODOLOGY

The Solidarity Bank Charges Report for 2012 is based on four user profiles and on various combinations of monthly transactions and two variations on each basic profile. The transactions or banking habits of the fictitious users generally correspond with the banks’ recommendations on how to reduce bank charges. These include:

The user profiles are based on monthly expenditure ranging from R7 500 to R31 000 and 12 to 29 specific transactions a month. For example, in the profiles in which the monthly expenditure is R7 500, there are 11 transactions of R500 each and one transaction of R2 000.

The report notes that people who spend more than R31 000 a month are probably more concerned about additional benefits, such as a personal relationship with a bank manager, than bank charges. “People spending less than R7 500 a month are probably most interested in the lowest bank charges, and can use the expenditure level of R7 500 and the charges for 12 transactions a month as a guide.”

The report omitted comparing overdraft and credit card facilities because of the large number of options, combinations, interest-free periods and interest rates that apply. Garage cards were also omitted because many filling stations now accept cheque, debit and credit cards.

how your bank fares

The Solidarity Bank Charges Report of 2012 provides a commentary on the transactional accounts offered by the “big four” banks – Absa, First National Bank (FNB), Nedbank and Standard Bank – and Capitec, a relatively young bank. Below is a summary of each bank’s offerings, according to the report.

Capitec

first national bank

absa

standard bank

nedbank

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