Should you switch your bank account?
There are a lot of banks that now offer fee-free accounts. Below are my thoughts on whether it is worth switching.
Reasons to make the switch:
- There’s no point making the bank rich
Yes, you might only pay $3 or $5 a month in fees to your current bank account however, over a year I’m sure you can think of better things to spend $36 or $60 on.
Also, it is the principle – putting your savings into a bank shouldn’t mean you have to pay for that privilege. I understand that there are some costs for the bank, but the banks can actually make profit on your money. How the banks do this is because they can create mortgages for up to 9 x the amount of the deposits the bank has.
Reasons not to make the switch:
- Paying extra hidden fees with a new account
If you end up paying extra hidden fees with a new account, you might end up in a similar position as before. I had an account that was charging me $5 per month. Then I switched to a $3 per month account. However, when I went overseas and took out cash at the ATM, I was charged a few different transaction fees that ended up totaling between $5 and $10 per transaction. Overall, I might have been better off in the short term staying with the higher monthly fee account, rather than paying large overseas ATM fees.
How to research which bank account to switch to:
I used www.canstar.com – which provides a pretty good list of banks and all the features of their accounts in a clear format.
I found some errors or missing information on Canstar, however overall the site was quite useful.
Factors to consider:
- Is there a minimum monthly deposit?
A lot of fee-free accounts have a minimum monthly deposit. Whether it is $2,000 or $1,000, it usually means changing your salary to be received into the new account.
This is okay, but if you lose your job or go overseas to work, you might find that you are back to paying regular bank fees.
- How long will the fee-free deal last?
If a bank is offering no fees, you must consider how long it will last. That great deal you signed up for suddenly loses it’s shine after a bank starts changing the terms and conditions.
The best example of this is Optus. When I got my first mobile, Optus offered free talk from 6pm. Over a few years, the free talk start time changed from 6pm to 7pm, then to 8pm and finally to 9pm.
Optus changed the terms and conditions so that the original great deal eventually wasn’t very good.
- Australian ATM usage
Some banks offer free use of other ATMs. This can be a factor that might make you consider using a smaller bank or credit union. ING direct, for example, offer to refund the other ATM’s transaction fee if you take more than $200 cash out.
- Overseas ATM usage
Because an overseas transaction will usually involve more than one bank, it can get pricey. When I last checked, NAB cost $4 to withdraw at an overseas ATM. This isn’t the cheapest (which I remember is $2 or $3) but it depends how often you go overseas.
If you have decided to switch banks – good luck! Next week I will post an article to help the switch go smoothly.