“It is easier to rob by setting up a bank than by holding up a bank clerk”
Well, the German playwright’s words hold true for even today’s time when banks, whether government or private, continue to levy charges for the services that they offer. Yes. While we engage in banking transactions almost every other day, we hardly realise the price we are paying to avail those services. Both, public and private sector banks charge certain percentage from their customers in lieu of the services they provide. Nowadays, banks permit individual account-holders to deposit and withdraw cash only a few times in a month. Beyond that, a certain amount of money is charged by the bank. These bank charges have been in the news for some time now.
From April to November 2018, India’s biggest public sector bank, the State Bank of India (SBI), earned Rs1,772 crore in minimum balance penalty alone. Other than SBI, 21 public sector banks and three major private sector banks also collected Rs5,000 crore from customers for non-maintenance of minimum balance in their accounts between 2017 and 2018.
These charges are regulated by the Reserve Bank of India (RBI) guidelines and all banks have to list them on their website. “Each and every charge has to be compulsorily listed on the website but the issue is we never bother to check them,” said Anant Ladha, Founder, Invest Aaj for Kal, a financial advisory firm.
While some of these charges may seem small, these can all add up to a substantial number. “Keeping in mind the usual investor behaviour, roughly Rs5,000-7,000 per year can be saved by properly managing these charges,” said Ladha. So, it is important to be aware of such bank charges in order to avoid paying more to the bank.
“Several of these charges are associated with specific account-types or debit cards. For instance, the charges for not maintaining minimum balance in a savings account with an average quarterly balance of Rs5,000 would be different from a premium account with an average quarterly balance of Rs10,000 or Rs50,000. In such cases, you will have to check the documentation provided with these services to get the information,” said Adhil Shetty, CEO, BankBazaar.com.
However, how much you end up paying as bank charges is difficult to quantify. For instance, if you withdraw cash couple of times a week from an ATM, you may be spending `100 or more per month on ATM withdrawal charges. However, if you plan and restrict your withdrawals to the free transactions limit, you would not incur that expense. Similarly, not maintaining the minimum balance would mean penalties and interest on penalties if not cleared in time. Shetty listed down some of the key bank charges one should be aware of—debit card charges, minimum balance charges and money transfer charges. Let us delve a little deeper.
Debit card charges are a commonplace charge that every bank levies. These usually depend on the type of savings account and debit card you hold. The more premium your card, higher the fees. Some premium savings account may allow free debit cards whereas a basic account may charge a fee ranging anywhere between Rs99-750. If you misplace your existing card, you may need to pay Rs200 for a replacement card.
Minimum Balance Charge is yet another fine imposed by banks and financial institutions. Banks levy penalties on savings accounts if the balance goes below the required threshold for the account. The threshold amount is calculated on the basis of a monthly average balance or average quarterly balance depending upon each bank’s criteria and the type of account. The charges could be a fixed amount, a percentage of the shortfall, or both depending upon the bank’s norms. For an ICICI Bank savings account, the minimum balance requirement is Rs10,000 for metro and urban locations, `5,000 for semi-urban locations and Rs2,500 for rural locations. The charges for non-maintenance of minimum monthly average balance is Rs750 per quarter.
Other forms of penalty include money transfer charge and ATM withdrawal charges. In the first case, when money is transferred through IMPS, NEFT and RTGS, a certain amount is charged depending upon the slab amount. While NEFT charges range anywhere between Rs1 and Rs25 (plus GST), penalty amount in RTGS transactions cost anywhere between Rs5 and 50 including GST and fees in IMPS transactions range anywhere between Rs1 and Rs5. On the other hand, banks also levy ATM withdrawal charges these days.
Normally, banks allow up to five free transactions per month at their own ATMs, and three free transactions at other banks’ ATMs. Exceeding this, you may end up paying around Rs20 per withdrawal.
Some of the lesser-known charges include duplicate statement charges and cash deposit charges. In case of duplicate statement charges, banks allow an annual account statement once in a financial year in physical copy. However, your request for duplicate or additional statements, may cost you anywhere between Rs50 and 100 per specified number of entries or around Rs10 per page, depending on a bank’s norms.
In case of cash deposit charges, banks restrict the number of cash transactions under a savings account to three to five per month and levy charges if you exceed under any account type. Thereafter, cash transactions are charged either as per prescribed slabs, or through fixed charges on a per-transaction basis. For example, if you have savings account in SBI, a total of three cash deposits are free every month. Beyond this the bank will charge Rs50+ GST on each transaction. At HDFC Bank, cash transactions up to Rs50,000 per day are free after which, Rs2.90 is charged per Rs1,000 above the limit.
Apart from the above-mentioned charges, banks may levy fees and penalties under different situations. Some of these include cheque bounce, SMS service fees, account closure, outstation cheque handling charges, extra cheque book, demand drafts, reward point redemption, locker rent and PIN regeneration. At SBI, if a cheque is returned for insufficient funds, Rs500+ GST is levied as a fee irrespective of the amount. At ICICI bank, the charges are Rs350 for one cheque return per month and thereafter Rs750 for financial reasons and Rs50 for non-financial reasons.
One should remember that these charges depend upon the banks. “The charges vary from bank to bank. Historically, the private sector banks have always levied higher charges. Of late even PSU banks have started charging for services, which were previously free in the past and have increased their existing charges as it results in a decent income for them,” explained Harsh Vardhan Dawar, Founder and Director, Wealth Cafe Financial Advisors. Once aware of these charges, the next step is to see how one can reduce or cut down on these. Ladha suggested that one must talk to the relationship manager when opening an account.
“First step is that when you open any account, please ask your relationship manager to waive off some of these charges. We feel that all these are compulsory charges since it is mentioned on the bank’s website but in reality, these are not. Some of these can be easily waived off by merely asking for it,” he further confirmed.
Another way to cut down on bank charges is to opt for premium savings accounts where many of the existing account related charges are waived off. “Banks have different categories of accounts and the charges levied for services vary accordingly. Accounts with higher minimum balance attract lower charges and enjoy more free services. For instance, if you are a preferred customer of HDFC bank (minimum monthly balance of Rs2 lakh), you are not charged for withdrawals from any banks’ ATM nor for NEFT transfer or DDs requested,” further confirmed Dawar.
However, it is important to maintain the high minimum balance requirement to avail such benefits.
If one has multiple accounts, it is recommended to close them. For accounts where there is a minimum balance requirement, it is important to keep a constant tab of the balance in the account to avoid paying extra charges.
One can log into netbanking services to check the balance, subscribe to SMS alerts or send an SMS to the bank to keep a tab on the balance at all times. Being aware of account balance is also important to avoid cheque bounce charges.
If slapped with a fee, a request to waive off the fee or reversing it can be made if your relationship with the bank is good. And banks do understand and empathise with the accounts that are not maintaining the minimum amount as it is owned by ordinary people, many of whom would be positioned in the economy at a place where maintaining the minimum balance is a far cry. The banks are well within their rights to levy fines because the law permits it.
But it remains an open-ended question as to how rational and justifiable are these charges levied on common people.