Account Fees and Charges

Account Costs

When you start earning or saving money you need to decide how you will store it.  A long time ago, people used to store their life savings under their mattress.  Nowadays though it is more common to have an account at a bank.  Having and using a bank account costs money. Fees and charges need to be paid regularly to the bank for holding an account with them.

Account Service Fee

The most common fee an account holder will usually pay to the bank is an account service fee just to maintain the account. This is typically paid on a monthly basis. 

Transaction Fees

A much smaller fee is often charged every time a transaction is made, such as withdrawing or depositing money. These are called transaction fees. However, don't be misled. These small transaction fees can build up over time as you make more and more transactions. Just think about how many transactions you would make in one month alone!

Some banks charge the same general transaction fee for all types of transactions.

Others prefer to charge separate transaction fees for transactions that occur at an ATM (Automatic Teller Machine), on the phone to the bank, at a local branch, or on the internet.

Some banks might also have a number of free transactions per month and some even have unlimited transactions of a certain type.

Examples

Question 1

Question 2

Penalty Fees

If you don't manage your money well or become unreliable, the bank can charge larger one-off penalty fees. They are normally a result of either promising to pay others for day-to-day things that you can't actually afford, or just being unpredictable with your responsibilities to the bank. Penalty fees are usually avoidable so it's good to try and incur as few of them as possible.

If you don't pay your regular fees on time, a late payment penalty will be charged.

If you withdraw more money from your account than there actually is, then this means the bank is forced to lend you extra money that it did not expect to. Your balance will drop below zero and you will be charged an overdrawn account fee.

If you use a credit card, a similar over-limit penalty can be charged if you spend over the agreed limit. 

If you have set up periodic payments to an individual or business who you pay regularly, or write them a cheque, the bank will charge a dishonour fee if your account has insufficient funds to make these payments. 

If you write someone a cheque, but quickly change your mind and call the bank to have it cancelled, a stop cheque fee will be charged.

Examples

Question 3

Summary

Here is a summary of the bank fees mentioned above. There are other possible fees that banks may charge, but these are the most common ones.

ACCOUNT SERVICE FEE

TRANSACTION FEES
General
ATM
Telephone
Internet

PENALTY FEES
Late Payment
Overdrawn Account
Over-limit
Periodic Payment Dishonour
Cheque Dishonour
Stop Cheque

When calculating the total amount of fees in a particular question, be careful of the period of time being asked about. It is not always $1$1 month!

 

Fees and Charges*

Like many other businesses out there, banks and other financial institutions charge their customers fees for the services they provide. One of the most basic fees is the account service fee, which is the fee they charge customers for maintaining their accounts and is charged at regular intervals, usually monthly. If a customer were to make a withdrawal or a deposit, then they may also be charged a transaction fee. Many financial institutions charge a higher fee when the transaction is made at a branch as compared to electronically via telephone, internet or ATM. Furthermore, the fee would likely be even higher if the transaction was made by a customer at an ATM belonging to another institution or at an ATM overseas. However, some institutions process transactions free of charge (up to a limit) for certain account types.

In addition to these standard fees, financial institutions also charge a range of penalty fees. These include, among others, periodic payment dishonour fees, overdrawn account fees, cheque dishonour fees, late payment fees and over-limit fees.

Periodic payment dishonour fees are charged when someone who makes regular payments to another account (to pay for electricity for instance) doesn’t have enough funds in their account, causing the transaction to fall through.

Overdrawn account fees are charged when someone withdraws more money than they have available.

Cheque dishonour fees are charged when a cheque someone has written can’t be cleared as a result of insufficient funds in their account.

Stop cheque fees are charged when a cheque, cancelled by the writer of the cheque, is presented for payment by the recipient of the cheque.

Late payment fees are charged when someone misses making the minimum payment, such as for their credit card, by the payment date.

Over-limit fees are charged when someone exceeds their credit limit on their credit card.

*Terms and conditions apply...

Example

The Bank of Jupiter charges an account service fee of $10 per month, a telephone transaction fee of $0.50 and an overdrawn account fee of $6. Calculate the total fees incurred by a customer in a one-month period in which she makes 5 transactions and incurs 2 overdrawn account fees.

Her account service fee for the month is $10.

To find her total transaction fees, we multiply the number of phone transactions she makes, 5, by the cost of a single phone transaction, $0.50:

$5\times0.50$5×0.50 = $$2.50$2.50

To find her total penalty fees, we multiply the number of overdrawn account fees she incurs, 2, by the overdrawn account fee per instance, $6:

$2\times6$2×6 = $$12$12

So her total fees for the month are

$10+2.50+12$10+2.50+12 = $$24.50$24.50