#money-tips | 5 min read

Banking fees – why they’re charged and how they’re calculated

By TymeBank - 21 January, 2021

You put your money in the bank to keep it safe and watch it grow by gaining interest, right? But then, when you make a lot of transactions you might notice that for some of them, you’re being charged a fee… what gives? There are important reasons banks charge fees for their services, and you could save unnecessary expenses by understanding what those reasons are and how those bank charges work.

A bank is like any business, and it costs money to keep one going. Banks have to pay salaries and other overheads, and physical branches (which have to pay for rent, electricity and security) can be especially expensive. That’s why the banking fees for an over-the-counter deposit or withdrawal in a branch tend to be higher than if you do the same thing at an ATM or via a mobile banking app. Take away the brick-and-mortar building and move to a virtual environment, and a lot of those running costs fall away.

There are still a few running costs left over, and the fairest way to recoup those costs is by charging customers fees for their banking transactions. Even on a basic, entry-level bank account, many banks will charge you a monthly administration fee just to keep the account open, and then you’ll pay a transaction fee for every withdrawal, deposit and transfer. Those fees can add up quickly – and over the years you’ll have noticed the amounts in your accounts steadily getting chipped away.

That – combined with the emergence of digital banks like TymeBank, which charge lower fees – has resulted in South African banks shifting towards lower fees in recent years.

Lower bank charges for digital banking

This has sent the South African banking industry into what analysts are calling a “race to zero”, where certain fees are being reduced even among the standard annual increases. TymeBank, for example, has adjusted its pricing for 2021, but hasn’t introduced any new fees and is in fact reducing important fees such as debit orders and payments.

TymeBank is different. As a digital bank with kiosks, till points and ATMs, we don’t have to support the expensive physical infrastructure of branches. In line with our mission to disrupt local banking, TymeBank charges no monthly fee, and no fee for opening an account (for example, there are no card fees and no mandatory minimum balances). Everyday banking activities such as balance enquiries, debit card purchases and even local online purchases are free of charge, while business banking activities like proof of account and beneficiary payment notifications via online banking and the mobile app are available to you without any fees being charged.

Why are some transactions free and not others?

Of course, not every transaction is free of charge. In most cases where physical infrastructure is involved, TymeBank charges a nominal fee (R9 per R1 000 or part thereof for cash withdrawals at ATMs, for example). Similarly, costs (and charges) are usually incurred when third parties, vendors or disputes are involved. For example, an unsuccessful debit order dispute carries a cost of R60.

These costs are cheaper than most other leading South African banks, but if you don’t want to pay any fees at all, there are easy ways to do so. Instead of withdrawing cash from an atm or bank, for example, why not make your payment via card or EFT? And instead of paying R3 to withdraw cash with your debit card at another retailer’s till point, why not do it for free at a Pick n Pay or Boxer store?

Treating customers fairly

Withdrawal fees have always been a grudge payment for banking customers, and understandably so. (It’s your money, and now the bank wants you to pay them to access it?) In response to that, South African banks have changed from a formula where they would charge a set fee plus a percentage of the amount being withdrawn, and now tend to go with a simple formula of a fixed fee per R100.

TymeBank, for example, will now charge R9 per R1 000 or part thereof. That makes things a lot easier for customers, and it’s consistent with the Financial Sector Conduct Authority’s (FSCA) regulatory push to have banks treat customers fairly.

This approach (they call it TCF) requires financial service providers to, among other things, make sure that customers are provided with clear information and are kept appropriately informed before, during and after each point of sale. In other words, as a customer you have to be told upfront what your bank charges are going to be, and you can’t get sucker-punched by any hidden costs.

Instead of charging fees for services you never use, banks are now also designing their products and services to meet the needs of carefully identified customer groups. Again, that’s part of the TCF approach.

From a customer’s point of view, the best bank fees are the ones you don’t pay at all. That’s why the industry-wide move towards online and digital banking, where running costs are less and bank charges are lower, makes so much sense – for banks and for their customers.

Bank for less

Open a TymeBank account here to get low fees, big rewards and up to 8% interest. With a TymeBank EveryDay account there’s no monthly fee, just pay-as-you-use banking.

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