30

I am not sure about other countries, but here in the UK we mostly don't need to pay a monthly fee. But I was a bit surprised to learn that most Canadian banks do charge monthly fees that some of them advertise a free first year as a special offer!

It does make sense to me the UK way because banks are making use of our money already to grow their business, so I don't see a justification for taking monthly fees. Yeah, it would make sense to take monthly fees if the banks only save the money for us, but that's not the case; otherwise, the bank will have no business.

  • 1
    Australia only recently has started getting out of this habit. Now there are only a few banks that still do it... – Shadow Dec 12 '16 at 4:25
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    Honestly, I have to pay RBC $180 a year for the privilege of letting them hold on to my money while they invest it behind my back. It makes sense if you don't think about it too much. – corsiKa Dec 12 '16 at 9:50
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    You may find the situation in the UK changes in a few years, as retail banks are now ring fenced from their investment banking arms - retail banks now are extremely limited in the investments they can do with your money, and they have to make that up someway, so expect a switch to charges. – Moo Dec 12 '16 at 13:52
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    Good question here. One thing to consider is going with local credit unions as an alternative. The biggest credit union in Saskatchewan offers no fee accounts, without monthly fees or fees for use of tellers in person or over the phone. I think the only transaction fees I've gotten have been out of network ATM fees. – Myles Dec 12 '16 at 14:56
  • No need to cross the pond. Just look at other European countries. E.g. in Austria, it's really common to pay a quarterly fee on top of transaction fees. (Strongly suspect Germany to be the same on this.) It's got cheaper / gratis with some online banks / brands, but the classical retail banks still charge afaik. – Martin Ba Dec 12 '16 at 22:29
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Arguably, "because they can".

Canada's banking industry is dominated by five chartered banks who by virtue of their size, pretty much determine how banking is done in Canada. Yes, they have to abide by government regulation, but they carry enough weight to influence government and to some extent shape the regulation they have to follow. While this situation makes Canada's financial system very stable and efficient, it also permits anti-competitive behavior.

There was a time (when U.S. banks were not permitted to operate across state lines) when the smallest of Canada's "big 5" was bigger than the biggest U.S. bank, despite our economy having always been about 1/10 the size of the U.S. That scale and their small number gives the "big 5" the ability to invest heavily in and collaborate on whatever they decide to be in their own interest.

So, if they want to charge fees, they do.

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    "Because they can" is definitely the right answer. The same applies to the telecom companies, who get away with outrageous charges. When I moved to Vancouver from London, the cost of mobile telephony was a taste of things to come. Ditto realtors and just about any other consumer service in Canada. – Nick R Dec 12 '16 at 0:26
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    Laissez faire at their best... oh, wait that is a bank cartel. – Mindwin Dec 12 '16 at 11:01
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    I would argue about the "efficient" aspect. But great answer otherwise. – Pete B. Dec 12 '16 at 14:18
  • Don't they have credit unions up north? In the USA, credit unions help keep the banks from entirely running everything. – RoboKaren Dec 12 '16 at 19:35
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    @RoboKaren There are credit unions in Canada. But they don't influence the market like the big 5 do. – Anthony X Dec 12 '16 at 20:33
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Lending isn't profitable when interest rates are this low. Consider what's involved to offer a savings or checking account. The bank must maintain branches with tellers. The bank has to pay rent (or buy and pay property taxes and utilities). The bank has to pay salaries. The bank has to maintain cash so as to make change. And pay for insurance against robbery. All of that costs money.

At 6% interest, a bank can sort of make money. Not great money, but it takes in more than it has to pay out. At 4% interest, which is about where ten year mortgage rates are in Canada, the bank doesn't make enough margin. They are better off selling the loan and closing their branches than offering free checking accounts.

An additional problem is that banks tend to make money from overdraft fees. But there's been a move to limit overdraft fees, as they target the most economically vulnerable. So Canadian banks tend to charge monthly fees instead. UK banks may also start charging monthly fees if interest rates stay low and other fees get curtailed.

  • 1
    Some already are introducing fee-based current accounts. FlexPlus from Nationwide, for example, which was introduced several years ago. It's not unheard of. – Lightness Races in Orbit Dec 11 '16 at 18:39
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    Canadian banks have charged fees for decades though, when interest rates were higher – Neil McGuigan Dec 11 '16 at 22:55
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    Although there is little spread between savings or GIC rates banks pay out and mortgage rates they take in (spread may be about 2% give or take), there is a lot more to be made in credit card interest (16% to 19%), in addition to the merchant fees (they discount from 1% to 3% or more depending on the merchant). Canadian banks make plenty of money and plenty of profit (each bank measures in the billions) - it gets reported every year. Fees are just another profit center. – Anthony X Dec 12 '16 at 0:00
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    This sounds wrong to me Japan has a close to 0% interest and banks charge a 0 monthly fee. In france, monthly fees has been introduced DESPITE increased profitability. They charge money because they can. – Antzi Dec 12 '16 at 1:03
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    As @NeilMcGuigan mentioned this is not a new practice in response to historically low interest rates or lower profit margins. This answer explains why banks would want to charge fees, not why (most) Canadian banks actually do. – Lilienthal Dec 12 '16 at 8:32
3

The other answers in this thread do a fine job of explaining the economic situation that banks are in.

In addition to that information, I would like to point out that it is not hard to avoid a monthly fee for Canadian bank accounts. Usually this involves keeping a minimum balance of a few thousand dollars at all times.

Actual examples (as of Dec 2016) for the lowest tier chequing accounts. Includes information on the minimum balance to waive the monthly fee, and the monthly fee otherwise:

1

You have to check your contract to be sure what is it you're paying for. Typically, you get some of the following features which can be unavailable to you in banks which don't charge a monthly fee:

  • adjustable payment/withdraw limits on your card
  • free re-issue of a lost/stolen card (usually there's a limit on how many times per year this is free)
  • free or cheap withdrawals in your bank's ATMs and ATMs of other banks
  • credit card fraud insurance (you get your money back if someone steals or skims your card)
  • legal insurance (you get a lawyer from your bank if someone sues you over a misuse of the credit card of the chequer)
  • free insurance provided with certain types of purchases like travel or skiing
  • other options I'm not aware of

Arguably, these expenses could be paid by the interest rates your money earn to the bank. Notice how banks which don't charge a fee usually require you to have a minimum amount of cash in your account or a minimum monthly cash flow. When you pay for your bank's services in cash, there's no such restrictions. I'm not sure if typical banks in the UK would take away your credit card if you lose your job and don't qualify for that kind of card any more, but I do know banks who would. The choice is yours, and while it's indeed sad that you don't have this kind of choice in Canada, it's also not like you're paying solely for the privilege of letting them invest your money behind your back.

  • Arguably, these expenses could be paid by the interest rates your money earn to the bank: I think that was the point of the question... And for example I have more features/services with my Korean bank that has no fee at all than any French banks that always have fees. Korean banks are so much more effective for free that it's not even funny :o – Shautieh Dec 13 '16 at 2:38

protected by Chris W. Rea Feb 4 '17 at 1:10

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