Survey reveals widespread increase in banking service charges -CHOICE # 393

Despite the economic slowdown and a minimal deposit interest rate, a Consumer Council survey has found many banks to raise their service charges.

This was borne out in a survey of the Consumer Council last month covering 22 banks on their levels of service charges.

The survey reflected widespread changes in the banks' schedules of service fees with recent increases, in many cases, up to 100%, compared with the charges in 2006 in a similar survey.

The increases were related largely to: low-balance and inactive account, returned cheque and auto payout, issuance of cashier's order and gift cheque, closure of account within 3months.

On low-balance account service charge, all but 3 of the 22 banks surveyed imposed a minimum balance requirement, ranging between $2,000 to $30,000.

The breakdown showed most banks required a minimum bank balance of $5,000, 3 were between $10,000 and $30,000 while only 1 $2,000.

The service charge for low-balance account now stood at $25 to $200 per month, compared with $10 to $200 per month in 2006.

But different banks may have different definitions of monthly account balance. Normally, both savings and current account balance in combination would be included as the average monthly balance.

On inactive accounts, all but 2 of the 22 banks imposed such service charge with increases, in the case of 9 banks, ranging from 6.7% to 100%.

Banks normally require customers to maintain an account for at least 3 months after opening. Otherwise, a levy of between $0 and $500 would be imposed, representing an increase of up to 200%.

On returned cheques due to insufficient funds, 17 of the 22 banks increased their service charge varying from $110 to $150 per cheque, representing an increase of 8.3% to 50%.

The increase in service charge for cheques returned for reasons other than insufficient funds was between 33.3% and 66.7%.

Similarly, the increase for returned auto payout ranged from 8.3% to 50%.

To avoid such increased costs, consumers will do well to deposit sufficient funds in their accounts before the issuance of cheques or the due date of autopay.

The survey found 14 banks to have increased their service charge on cashier's order from 25% to 50%. Only 2 banks raised their service fee on gift cheque.

Despite increased banking service charges which will have an adverse impact on the hard pressed consumers, the survey found an overall increase in the total number of bank branches from 1,209 to 1,299, or by 7.4%, between May 2006 and April 2009.

The breakdown showed 6 banks trimmed down the number of branches from 7.2% to 28.8% while 10 banks, on the other hand, expanded the number from 2.4% to 37.8%, and 4 banks remained unchanged.

Over the years, banks have significantly strengthened their internet and other means of self-service banking - with some 95% of the banks offering free internet banking service.

According to a survey of the Hong Kong Association of Banks, for 5 major retail banks, the proportion of bank transactions conducted through ATM machines was 36%, internet banking (33%), branches (22%) and phone banking (7%) in 2008.

While more people were turning to self-service banking, a 22% of the transactions were still conducted through bank branches.

To help the disadvantaged and those with little knowledge of IT, the banking industry is urged to continue to provide convenient branch banking service and fee waivers to these people.

Deposit interest rates have come down substantially from a range of 2.25% to 3.45% in 2006 to the present 0.001% to 0.2%. This has led to consumers opting to deposit their money in relatively small or medium banks for higher return.

Consumers are reminded that the full deposit protection scheme is valid only until the end of 2010 and there is a need to evaluate the risk in putting deposit in different financial institutions afterwards.

Some tips on avoiding unnecessary banking service charges:

• Merge accounts in different banks to boost the total sum of balance to avoid low-balance account fee and possibly to be upgraded to "privileged" integrated account. But be aware of the suitability and terms and conditions of integrated account.
• Perform transactions through internet banking whenever possible. It not only saves time to make transactions on the internet, but also money on some banking service items e.g. gift cheques.
• Consider using banks that waive low-balance charge to certain disadvantaged customers or banks which require no such charge. Also consider banks that waive low-balance account fee provided that customers use self-service banking for withdrawal and money transfer.