the mozo blog

Last time I looked at my budget, I checked my bank statements to see how much I spent on bank fees. What jumped out was the $60 I spent in ATM fees in the past year – those “too lazy to walk to my own bank’s ATM” fees. Neither my accountant nor my personal trainer would be happy with that, so today when I went to grab lunch and found myself cashless I thought I’d make the effort.

I walked past Suncorp, Bank of Queensland and Westpac ATMs – and ignored 11 other closer machines in the opposite direction – in search of my nearest rediATM. The rediATM iPhone app tells me it is only 350 meters away, which seems a doddle, but it doesn’t know that pedestrians in Sydney need to make an application to cross the road and must then wait impatiently for a billion cars to pass before they are afforded the luxury. This can take a while.

Of course, when I got there the ATM was broken. (You knew that was coming, didn’t you?) But this was not your usual “This machine is not currently in service” kind of broken. No, I’m talking about the totally-dismantled-and-lying-in-pieces-all-over-the-footpath kind of broken. Innards out one side, screen missing, keypad on the ground, wires all over. According to the ATM technician at work on it, “Somebody head-butted it.”

If you know William Street in Sydney, you’ll know that this is not at all unlikely.

Anyway, it got me thinking about how I might avoid all this shopping around for cash. There are two particularly interesting options. ING’s Orange Everyday account actually rebates the $2 ATM fee from any ATM in the country, as long as you withdraw $200 each time. Or Bankwest’s Zero Transaction Account gives free use of any Big 4 ATM, as long as you deposit $2,000 a month into it. But both of these mean giving up the really good interest rate I get on my current product, and changing the way I manage my money. Another option for me would be to switch to Suncorp, whose ATM is practically next door, but that only works when I’m at Mozo HQ and is of no use at my local shops.

Everyone knows there’s no such thing as a free lunch, and it seems that perhaps there’s no such thing as free lunch money any more, either. Perhaps this is why that guy head-butted the ATM.

Rather than shopping around for cash every week (or hitting your head against a bank wall), ask yourself whether you might be better off spending some time shopping around for the right account. And the right account is different for everyone – which is where Mozo’s bank account comparison tables come in.

A slew of Australia’s banks, including the Big 4, are facing, what is being labeled as the largest class action case in corporate history. Litigation funder IMF Australia is funding several class action suits against the banks, seeking at least $400 million of the $5 billion charged in ‘exception fees’ by the banks.

Exception fees are fees charged by banks for ‘exceptional’ circumstances. These circumstances include late payment fees on both credit cards and loans, over-limit fees on credit cards, honour fees when overdrawing a bank account, and dishonour fees charged for cheques that bounce. Reserve Bank data shows that banks charged consumers $961 million in exception fees in 2008.

The impact of these fees on your credit card cost can be significant. Say you’re on a ‘low rate’ credit card with an interest rate of 11.99% and running a $3000 balance. A $30 charge for being a couple of days late on a payment effectively makes your interest rate 12.99% in terms of your cost. If you’re late or overdraw a few more times over the course of the year, the additional costs effectively transforms your low rate card into a middle of the range card without any of the perks.

The principal legal argument for the class action is that when a customer breaks a contract with a bank (by making a late payment for example), the bank may only be able to recover a reasonable estimate of the cost. IMF Australia’s contention is that the banks charge fees much higher than what can be termed a ‘reasonable estimation’, given that it actually costs banks “only a few dollars at most” when you make a late payment or overdraw on your account.

There is a foreign precedent, with close to a million Britons unsuccessfully seeking compensation for overdraft charges in 2009, though a new case set to be heard in Glasgow in June could lead to more litigation. The issue also reared its head in America, with the US Federal Reserve recently ruling that creditors must obtain a consumer’s consent before charging fees for transactions that exceed the credit limit.

Here in Australia, the worst offenders for credit card over limit and late payment fees are Citibank and Suncorp, both charging a whopping $40 for each occurrence. Even NAB, who made a great deal of noise when slashing bank account fees this year, still charge $25 for going over your card limit and $30 for a late payment. Westpac and St. George lead the way, charging only $9. However, the case goes back six years, which could still spell trouble for those who have only recently cut fees.

Even though there will most likely not be a resolution for years, if ever, it will be intriguing to see how the banks behave in the light of all this publicity, particularly in a time of record profits. Even if this case is successful, it almost goes without saying that the banks will find other means to maintain their margins, whether through higher regular account fees or interest rates. As a consumer, the best way to deal with this is to shop around. Only when customers start voting with their feet (and their wallets) will banks really address these issues.

Banking comparsions at mozo.com.au

As you may remember, a media firestorm erupted last week when Westpac announced it would charge interest on fees and interest on all Westpac Credit Cards. Westpac defended itself by saying this is standard practice among banks — but just how standard is it?

Well, it seems Westpac was right. Across the ‘Big 4′, interest is charged on interest and fees. And they’re not the only ones either, with the likes of American Express, Citibank and St George all guilty of the same tactics.

But this isn’t all — while digging into the fine print about interest and fees, I discovered a myriad of sneaky tricks banks use in charging customers. Forget the trivial feats of magicians and illusionists like Blaine, Copperfield or Criss Angel; for real trickery you need look no further than your monthly credit card statement.

For example, a widespread ace you’ll find up providers’ sleeves involves the specific debts your repayments actually pay off. Most cards’ conditions require your repayments to go towards those purchases that attract the lowest rate. This makes any purchases made at a higher rate more likely to attract interest charges, as they are the last to be paid off.

Another little rabbit in the hat is the date from which interest is charged. Instead of charging interest from the date a transaction is posted to your statement, some providers charge from the date of transaction. While there’s only a few days’ difference, it can add up, especially for larger purchases.

And then there’s the cleverest banking sleight of hand — the ‘prestige’ in magician’s parlance. The typical 44-55 days interest-free period on purchases is often viewed by customers as a breather between spending and interest charges. But quite often this buffer pulls a disappearing act. If your balance is not paid in full by the due date, you’ll lose your interest free days with Commonwealth, ANZ and Westpac. NAB is more lenient, but you still have to maintain your monthly minimum repayment.

So what does this mean for your bottom line? If you lose your interest free days, your bank will levy interest comprising a total of daily interest charges on your purchases going all the way back to the date of purchase. While NAB and ANZ only charge this interest on the overdue amount, Westpac and Commonwealth Bank will charge the 55 days of interest retrospectively on the entire balance, even if minimum repayments are met. What’s more, you won’t get those interest-free days back until those old balances are paid in full. In some cases, such as BankWest, you’re required to pay two consecutive statements in full before they give you this ‘luxury’ back.

In The Prestige, the magician Robert Angier (Hugh Jackman) warns us: “If anybody really believed the things I did on stage, they wouldn’t clap, they’d scream.” I’d be surprised if your next credit card statement was greeted with applause…

Compare credit cards at mozo.com.au

Late last year, consumer group Choice won a significant victory in the conservative (ie stubborn) field of bank fees. NAB declared it would drop dishonour fees on overdrawn savings and transaction accounts following a backlash against the unpopular charges. And now businesses will reap the rewards, too.

The bank was pressured both by ongoing complaints and the Reserve Bank’s disclosure that the industry raised almost $1 billion in dishonour and exception fees. While the cause was taken up in defence of underprivileged account holders, small business will also enjoy the fruits of fee free accounts, which come into place this week.

At this stage, none of the other big banks have followed NAB’s move, but it’ll be interesting to see whether more consumer agitation drives changes that also benefit small business. We’ll keep you posted.

Compare banks accounts at mozo.com.au