Many people who review their bank statements may have noticed bank fees being charged. Some of the fees are expected, but others may come as a surprise.
One of the ways banks make money is by charging service fees. Those service fees make up about 5% of the revenue of the six largest banks in Canada, according to the Canadian Bankers Association (CBA).
Here’s what you need to know about bank service fees and why they exist.
It costs the bank money to offer services.
There is a cost to the bank to offer services. Some of that cost is linked to physical items, such as mailing paper statements. Other times, the service requires technology, which must be updated and maintained. Although transactions on your end may seem automatic, there is still administration associated with the services you access.
The CBA notes that the fee charged for any particular service is based on the cost to the bank of providing that service. This includes paying for staff time, technology to offer that service, and providing security for any risks involved in the service.
It costs banks money to stay in business.
As a business, banks have many costs they must cover. This includes salaries for their staff, overhead costs for branch locations, and administrative fees. On top of this, banks exist to make money for their shareholders, and they are responsible for growing their profits each quarter
Additionally, bank net income is used to make investments in the bank to improve its infrastructure and make acquisitions on behalf of the bank.
Common bank fees
Fees commonly charged by banks include monthly services fees, transaction fees, NSF (non-sufficient funds) fees, and overdraft fees. Not all banks charge the same fees, and different banks offer various waivers for their fees.
For example, maintaining a minimum balance in an account might result in maintenance fees being waived. That’s because the bank also makes money from lending out those dollars and earning interest and fees on those loans. So, banks benefit either by you keeping a minimum balance in your account or by you not keeping that balance and paying fees.
Fees aren’t the only way banks make money. They earn money from interest on loans given to customers, trading securities, and commissions for wealth management.
Avoiding bank fees
Although you likely can’t avoid bank fees entirely, there are ways you can minimize the fees you pay. Read the fine print on your account agreement and ensure you understand all the fees associated with your account.
If your account doesn’t offer unlimited transactions, be sure to plan your transactions to limit your fees, so you’re conducting the fewest possible transactions from that account. Consider bundling your services if your bank offers reduced fees for holding multiple accounts.
Look into whether your bank offers a fee waiver for maintaining a minimum balance in your account. If possible, keep at least that amount in the account at all times, to avoid paying monthly fees. Also, explore whether special accounts are available to you, such as a student or a senior account.
The bottom line
Banks are businesses, and businesses need to make money. Service fees are one of the ways that banks stay afloat and provide high-quality customer service.
So, take your time, research, and compare different banks to find the best options for your individual needs. A few simple steps can help you save money on bank fees.