Bank Fees Demystified: Strategies for Smart Banking

In theory, you shouldn’t have to pay bank fees just to have an account with them. Banks already make money from the interest on loans, which is funded by our deposits. Yet, many banks charge customers thousands of rands in fees every year. Managing these fees can be challenging, especially when you’re busy.

In this blog, we will cover what bank fees are and the different types banks charge, such as account maintenance fees, ATM fees, and overdraft fees. We’ll show you how to calculate and manage these fees effectively with a practical example. Additionally, we will provide tips and strategies to minimise your bank fees and highlight which banks offer the most cost-effective accounts for different income levels. Lastly, we will explain when and how bank fees can be deducted from your taxes. By the end of this blog, you’ll have a clearer understanding of bank fees, how to reduce them, and make more informed banking decisions.

What Are Bank Fees

Bank fees are charges that financial institutions impose on customers for various services. These fees can be one-time charges or ongoing, depending on the type of service. They might seem small individually but can add up quickly over time. Banks use these fees to generate revenue, especially when interest rates are low.

Types of Bank Fees

Here are some common types of bank fees you might encounter:

Account Maintenance Fees: Many banks charge a monthly fee to keep your account open. These differ with each bank and consumers would need to contact the bank directly to find out about the Discovery bank fees, Nedbank banking fees, Tyme bank fees, Capitec bank fees, Investec banking fees, Standard Bank fees, Absa banking fees, and FNB banking fees. Sometimes, maintaining a minimum balance can help you avoid this fee.

Withdrawal and Transfer Fees: If you exceed a certain number of transactions per month, you may incur fees. This includes both withdrawals and transfers.

ATM Fees: Using an ATM outside your bank’s network can result in additional charges. Always try to use your bank’s ATMs to avoid these fees.

Non-Sufficient Funds (NSF) Fees: If you try to make a transaction without enough money in your account, the bank will reverse it and charge you an NSF fee.

Overdraft Fees: When your account balance goes below zero, the bank will charge you an overdraft fee. This is essentially a short-term loan from the bank.

Late Payment Fees: Missing a payment deadline on your credit card or loan will result in a late payment fee.

Why Do Banks Charge Fees

If you’re wondering, why do banks charge ATM fees, the answer is simple: banks charge fees primarily because they have the ability to do so. Unless regulations explicitly prohibit certain fees, or competitive pressures make it risky to charge them, banks see fees as an additional revenue stream. This revenue helps them cover the costs of providing various services and supports their overall financial health.

Bank Fees: Driving Profitable Customer Behaviour

Fees are also a strategic tool for encouraging certain customer behaviours that are beneficial for the bank. For example:

• Limiting Transactions: Some banks impose fees for exceeding a certain number of transfers or withdrawals each month. This helps manage the bank’s operational costs.
• Bounced Check Fees: Charging for bounced checks discourages customers from writing checks without sufficient funds, reducing the bank’s risk and administrative burden.
• Service Fees: Fees for issuing bank checks or conducting specific transactions prompt customers to consider whether these services are necessary, thus reducing unnecessary labour for the bank.

By implementing these fees, banks can nudge customers towards behaviours that are less costly for the institution, ultimately improving their profitability.

Bank Fees: Controlling Customer Demographics

Bank fees also play a role in shaping the bank’s customer base. Here’s how:

• Waiving Fees for High Deposits: Many banks waive fees for customers who maintain higher balances. This incentivises wealthier individuals to bank with them, as their larger deposits are more profitable for the bank. This is because banks general charge for deposits for example a standard bank cash deposit fee or a standard bank immediate payment fee will have a set charge for them etc.
• Discouraging Low Balance Accounts: Customers with lower balances, who may not generate significant profit for the bank, often face more fees. This can deter these individuals from using certain services, thus reducing the bank’s costs associated with maintaining numerous low-balance accounts.

This strategy helps banks attract and retain customers who contribute more significantly to their revenue, while discouraging those who might cost more to serve than they bring in.

How To Calculate Bank Fees

Understanding how to calculate bank fees can help you manage your finances more effectively and avoid unexpected charges. Let’s break down the different types of bank accounts, the fees associated with them, and how to calculate these fees.

Types of Bank Accounts

Before diving into calculations, it’s important to know the different types of bank accounts available:

1. Savings Account: Earns interest, no overdraft facility. Ideal for short-term savings.
2. Cheque or Current Account: Used for regular deposits and withdrawals. Includes an overdraft facility.
3. Fixed Deposit Account: For lump sum investments over a set period, earning higher interest.
4. Credit Account: Allows purchases on credit, to be paid later.
5. Debit Account: Directly linked to your main account for immediate payments.

Example of Calculating Bank Fees

Let’s go through an example to understand how these fees are calculated.

Scenario: Arthur’s bank, Egoli Bank, lists the following fees:

• Monthly maintenance fee: R5.00
• Self-service banking fee: R15.00
• ATM cash deposit (Egoli Bank): R5.00
• ATM cash withdrawal (other bank): R7.00
• Over-the-counter cash withdrawal: R10.00
• Balance enquiry (first free, second: R10.00)
• Till point cash withdrawal: R2.00
• Electronic account payments: Free (up to 3 per month)

Arthur’s Transactions:

• Deposits R335.00 at an Egoli Bank ATM.
• Withdraws R500.00 at another bank’s ATM.
• Withdraws R100.00 over the counter at Egoli Bank.
• Enquires about his balance twice over the counter at Egoli Bank.
• Withdraws cash while buying groceries.
• Makes 3 electronic payments for rent, electricity, and phone bill.

Total Fees: R5.00 (monthly) + R15.00 (self-service) + R5.00 (ATM deposit) + R7.00 (ATM withdrawal) + R10.00 (over-the-counter withdrawal) + R10.00 (balance enquiry) + R2.00 (till point withdrawal) = R54.00

Reducing Bank Fees

To minimise your bank fees, consider the following tips:

1. Choose the Right Account: Select an account that fits your banking habits and offers the lowest fees for the services you use most.
2. Use In-Network ATMs: Stick to your bank’s ATMs to avoid additional withdrawal fees for instance standard bank monthly fees .
3. Maintain a Minimum Balance: Some accounts such as standard bank monthly fees waive monthly fees if you keep a certain balance.
4. Opt for Online Banking: Online-only banks often have lower fees compared to traditional banks.
5. Review Your Statements: Regularly check your bank statements to catch any unexpected fees and understand your spending patterns.

Which Bank Charges Less Fees

Navigating the banking world and finding the bank with lowest fees can feel overwhelming. This is because all banks also have varying fees such as discovery bank account fees or discovery bank monthly fee. But worry not! Here’s a bank fees comparison of some of the most cost-effective bank accounts in South Africa, categorised by income level.

The Cheapest Low-Income Bank Accounts

FNB Easy PAYU: For those with basic banking needs, the FNB Easy PAYU account has one of the cheapest banking fees in South Africa. With a monthly fee of R5.25, this account includes a significant number of free transactions. You can also enjoy free airtime purchases and cash withdrawals at shop counters.

Absa Transact Account: Coming in second is Absa’s Transact Account. This account offers free cash withdrawals at shop counters and allows one free transfer to a cellphone number per month. It’s available to individuals earning less than R3,000 a month and automatically upgrades to a Flexi Account once you start earning more.

The Cheapest Online-Only Bank Accounts

TymeBank: TymeBank takes the top spot for the cheapest online bank account, with fees as low as R14 per month. This makes it a fantastic choice for those who prefer digital banking without the need for physical branches.

Bank Zero: Following closely is Bank Zero, with a monthly fee of R17. Both TymeBank and Bank Zero are banks with zero fees on most of the normal fees charged by other banks. They offer lower transaction costs compared to traditional banks, making them excellent choices for tech-savvy users.

The Cheapest Middle-Income Bank Accounts

FNB Fusion Aspire: For middle-income earners, the FNB Fusion Aspire account is the most economical, charging R102 per month. This fee covers most common transactions, excluding electricity purchases.

Nedbank MiGoals Plus: If FNB Fusion Aspire doesn’t suit your needs, consider Nedbank’s MiGoals Plus account, which costs R109 per month and includes a comprehensive range of transactions.

The Cheapest Higher Middle-Income Bank Accounts

Nedbank MiGoals Premium: In the higher middle-income category, Nedbank’s MiGoals Premium account is the most cost-effective at R240 per month. It caters to customers with more sophisticated banking needs.

FNB Fusion Premier: The second-best option here is FNB’s Fusion Premier account, charging R247 per month. Both of these accounts offer a variety of free transactions and additional value-added services.

Are Bank Fees Tax Deductible

When tax season rolls around, many business owners start wondering: Are bank fees tax deductible? The short answer is it depends. Let’s break it down in simple terms to help you understand when bank vat fees apply and how you can deduct bank fees from your taxes.

Business Accounts: Business-related bank fees, like maintenance, transaction, wire transfer, and ATM fees, are tax deductible.

Personal Accounts: Personal bank fees are generally not tax deductible according to SARS.

Combined Business and Personal Expenses: Only deduct the portion of bank fees related to business if using a combined account.

Separate Accounts: Maintain separate bank accounts for personal and business transactions to simplify tracking deductible expenses.

How to Claim Deductions

1. Document Everything: Keep detailed records of all bank fees related to your business account. This includes maintaining receipts, bank statements, and any other documentation that shows these fees are necessary for running your business.
2. Consult a Tax Professional: Tax laws can be complex and change frequently. Consulting with a tax professional can help ensure you’re claiming all eligible deductions and complying with current regulations.

Take Control of Your Finances with National Debt Advisors

Navigating bank fees and understanding their impact on your finances can be overwhelming, especially when you’re already managing a tight budget or dealing with debt. At National Debt Advisors, we specialise in helping individuals like you reduce their debt burden and gain control over their financial situation. Our experienced debt counsellors are dedicated to providing personalised advice and practical solutions to help you manage and minimise your expenses, including those pesky bank fees that can add up over time.

If you’re struggling with high bank fees or feeling the pressure of debt, National Debt Advisors offers comprehensive support tailored to your unique needs. From analysing your financial situation to developing a customised plan to address your debt, we’re here to guide you every step of the way. Our goal is to help you regain financial stability and make informed decisions that positively impact your financial future.

Don’t let bank fees and debt hold you back any longer. Contact National Debt Advisors today for a free consultation and take the first step towards a more secure and manageable financial future. Call us now and discover how we can help you lower your bank fees, alleviate your debt and regain control over your finances.