This year’s Solidarity Bank Charges Report is very much a Capitec story, as it was last year, the year before that and the year before that. This is because, in almost all user profiles, Capitec charges lower fees than the so-called “big four” banks: Absa, First National Bank (FNB), Nedbank and Standard Bank.
In its report, the trade union, Solidarity, has four user profiles, which are not defined according to level of income, but by the number of transactions per profile.
Competition from Capitec has forced the big four to offer consumers who want a basic bank account (cost-effective, without bells and whistles) a better deal than they could get seven years ago, when Solidarity began to monitor bank fees. But even for people with more sophisticated banking needs, a Capitec account offers “significant savings” on charges, compared with the other banks’ accounts targeted at the middle class, the report notes.
Capitec’s only real limitation is that it still does not offer overdraft facilities and credit cards, the report says.
The Solidarity report offers advice to customers who want to cut back on bank charges.
1. Switch to a bundle
If you bank with one of the big four and you aren’t already on a bundle account, consider switching to one (see table). A bundle account attracts a relatively high fixed monthly fee for a bundle of transactions. The package can include an overdraft facility and/or credit card.
These accounts are generally more cost-effective than pay-as-you-transact accounts, the Solidarity report shows. The cost of a bundle account is about R100 a month, according to the report.
The fixed monthly fees on most of the bundle accounts offered by Absa, FNB, Nedbank and Standard Bank have remained the same, or have increased only marginally (over the past year), but nearly all pay-as-you-transact accounts saw increases in administrative fees, cash withdrawal fees and other fees, the report says.
Considering that bundle account fees haven’t changed significantly since 2013, Solidarity says consumers with these accounts have benefited from a decrease in the cost of banking in real (after- inflation) terms.
2. Don’t use other banks’ ATMs
Drawing cash from another bank’s ATM can significantly increase your bank charges. The bundle accounts offered by the big four banks don’t include a cash withdrawal at another bank’s ATM – also known as a Saswitch withdrawal. When it’s unavoidable, you will wish you were an Absa Transact, Nedbank pay-as-you-transact or Capitec account holder. Irrespective of the amount drawn, these customers pay a nominal fixed fee, whereas other account holders pay a hefty fee based on a complicated formula.
Solidarity compared the cost of Saswitch withdrawals on accounts aimed at customers with a low income (see table) and found most of them wanting. Low-income earners are generally heavily reliant on cash for taxi fares and daily incidental costs.
Middle-income earners, who are encouraged by the banks to open bundle accounts, can also be severely affected by Saswitch withdrawals. The Solidarity report shows that just one Saswitch withdrawal of R2 000 can push up your monthly fee by between 35 and 42 percent if you have one of the popular bundle accounts offered by the big four banks.
3. Honour your debit orders
As the Solidarity report states, the practice of levying fees on unsuccessful debit orders has been controversial for years.
“There appears to be no coherent reason to explain why the banks levy exorbitant fees on these unsuccessful transactions … The notion that this fee is a type of penalty for the risk the bank is exposed to, due to the client’s breach of contract, does not hold true, as the debit order contract is not between the account-holder and the bank, but between the account-holder and the third party.” If anyone should be entitled to levy a penalty, it is the third party, not the bank, which is merely an intermediary, the report says.
Some years ago, the big four banks began lowering these penalty fees on accounts for low-income earners, and Absa’s Transact account does not charge any fee at all, Solidarity reports. “Even so, these fees remain high in respect of the mainstream account. As they are so high, they can create a financial risk for account holders. It is therefore important to consider the level of these fees when making a decision about a bank account,” the report states.
Solidarity points out that debit order instructions can be issued more than once a month by a service provider, meaning that penalty fees can be levied more than once.
Some banks have introduced alert services, at a cost, to warn you that you are unlikely to have enough money to honour your debit orders. But the solution is simply to stop levying such exorbitant fees in the first place, Solidarity says.
4. Use it or lose it
Rewards programmes offered by the big four can be a big drawcard, particularly when there is a negligible difference in the cost of the bundle accounts aimed at the middle-income market, Solidarity reports.
Absa has Absa Rewards, which costs R22.50 a month; Standard Bank has UCount, which costs R20 a month; FNB has eBucks, membership of which is free or part of the deal for customers who opt for the bundle accounts aimed at the middle-income market; and Nedbank has Greenbacks, which costs R18 a month but is free on some accounts.
The prerequisites for earning rewards vary considerably, as do the ways in which you redeem rewards. If you are interested in these programmes, you have to do your homework properly before deciding on a bank, Solidarity says. Also be aware that the terms and conditions can and do change.
Solidarity says that, over the past two years, many of the rewards programmes appear to have scaled back on their offering, either by decreasing the points earned for purchases or by making it increasingly difficult for you to reach the higher tiers of the programme. It is important that you are not swayed too easily by promises of benefits that you may battle to earn or achieve.