Why do some banks charge monthly fees?

The first time you put your money into the bank, you had the basic concept of banking. Banking helps you manage your money by holding it in a savings or chequing account, and it also gives you access to loans that will help you accomplish important goals.

But at this point, you're frustrated! All you're trying to do is manage your income and savings. So, why do Canadian banks consistently increase their fees? Every year you see more deductions than you expect, and now, you're beginning to consider various methods to cut costs.

You’re in the right place.

Keep reading to learn why Canadian bank fees keep rising and what you can do about it.

Why Do Some Banks Charge Monthly Fees?

Many Canadian banks haven't been fully clear about why bank fees can reach up to $30 a month, which is why KOHO is transparent about fees, offering a fee-free account as well as an Extra account for only $9 a month.

Some big Canadian banks reportedly hiked fees on their chequing accounts just a little more than a year after COVID 19 hit. For instance, one big bank increased the transaction fee on one of its popular chequing accounts from $1.25 to $1.95 and they increased the minimum monthly balance from $2,000 to $5,000. So, people who don't have much money sitting in their banks pay these new fees. That's not all…

From July 1st, another bank also increased the fees on several of its own accounts.

On March 1, a third bank announced that fees were going up on multiple account types.

And from May 1, you guessed it, yet another raised the monthly account fees on some of its banking products.

So, you've seen that banks have been making changes that will take more money out of your pocket. These changes are not going to revert anytime soon. You can expect the fees to keep increasing.

A Drop in Interest Rates

The main reason some Canadian banks are charging increased monthly fees is because of the drop in interest rates.

The prime lending rate in Canada dropped from 22.75% in 1981 to 2.95% in 2017 and sits at 2.45% as of September 2021. Interest rates saw a massive drop after the 2008 financial crisis and haven’t stopped going lower ever since.

So, banks started looking for ways to fill in the revenue gap. They decided to increase bank fees.

From the World Bank statistics, we can predict that Canadian bank fees will not fall back to what they were 5 years ago.

Don’t worry, we’ll share ways to save that extra $300 you spend every year on bank fees (hint: by banking with KOHO).

But before that, let's look at the most common fees your bank may charge you for.

Most Common Bank Fees to Look Out For

• ATM fees

• Overdraft fees

• Minimum balance fees

• Non-Sufficient funds (NSF) fees.

• Monthly accounts fees.

• Paper statement fees.

• Electronic transfer fees.

• Foreign transaction fees.

• Lost card fees.

ATM Fees

All major Canadian banks have automated teller machines (ATM), which we commonly refer to as “automated banking machines” that allow you to withdraw money from the closest bank to you. Withdrawing money from the ATM associated with your bank comes with zero charges. Most times, when you withdraw from privately-owned (white label) ATMs or machines owned by other banks, you're charged a fee. The ATM providers charge you a fee of $1-$4 on top of the $1.50-$2.50 per transaction fee from your bank—KOHO doesn’t charge this (you will, however, be charged any fees the ATM owner charges).

Overdraft Fees

Overdraft protection is usually optional, but some banks opt-in for you so you pay the fees without even knowing. Overdraft protection helps cover your transactions up to an approved limit when your chequing account falls short. Overdraft fees typically range from $2.50 to $5 monthly depending on your bank.

Minimum Balance Fees

As mentioned earlier, some banks waive all your monthly fees if you maintain a certain amount (sometimes up to $5,000) in your chequing account. If your bank balance falls below the minimum amount set by your bank, you pay the “minimum balance fee.”

Non Sufficient Funds (NSF) Fees

NSF fees are expensive! You want to avoid them completely. Most financial institutions, not including KOHO, charge your account with NSF fees when you can't complete transactions like clearing or cashing a cheque because of insufficient funds in your account. These fees are usually $45 per transaction. The banks claim they don't want you to overdraw on your account. So, you may either want to ensure you keep enough money in your account or get a bank that doesn't charge this (we'll look at this soon).

Monthly Accounts Fees

These are the most common fees the big banks charge on your account every month. You pay this maintenance fee whether you own a savings or chequing account. Monthly fees range from $3 to $30.

Paper Statement Fees

Various banks charge paper statement fees or paper stock trade confirmation fees. Banks charge these fees because it has become easy to receive your bank statements online, so they don't expect anyone to request a paper statement. If you do, you get charged between $1 and $5 monthly.

Electronic Transfer Fees

Interac e-Transfer is a faster and easier way to send money between Canadian businesses and personal bank accounts. It's cheaper than using a bank draft which costs about $7.50 or sending a money order (costs $5 to $8). Electronic transfer fees are between $1 and $1.50 at most banks and credit unions.

Foreign Transaction Fees

If you send money to foreign banks often, consider getting a foreign bank account to reduce transaction fees or working with a bank such as KOHO that doesn’t charge them. Banks take between 2.5% and 3% per transaction when you use your credit card to purchase items online from another country.

Lost Card Fees

If you misplace your card or it gets stolen, you'll need to replace it with another from the bank. Banks can charge up to $15 to replace your card.

What Can You Do About High Bank Fees?

You can't avoid paying bank fees every year, but you can greatly reduce these charges by trying these steps we've compiled for you.

Opt for a No-Fee Digital Bank Account

Digital banks have been in existence for a while now, and it's time you look into them, especially if you're trying to save money on bank fees.

According to the Canadian Bank Association, more than 75% of Canadians no longer go to brick and mortar banks to complete their transactions. They now use online and mobile banking, although some of these online banking systems still belong to traditional banks.

Many Canadian banks have no fees and some of them also come with unlimited transactions, interest payment on both savings and chequing balances, and welcome cash bonuses of up to $200.

KOHO is another brilliant alternative to no-fee banks. Starting from $0/month, you enjoy the benefits of saving money along with other benefits such as financial coaching, no foreign transaction fees, and up to 1% cash back on groceries and transportation on the Easy account.

If you're fed up with traditional banks and their money-sucking activities, a digital bank may be just what you need right now.

Maintain the Minimum Balance for Your Chequing Account

If you’re getting hit with minimum-balance fees, you can get your monthly fees waived every month by maintaining a minimum amount of money in your account.

This practice is a bit difficult for most people because they don't earn any interest on chequing account balances, so they would rather have their money in a savings account and earn monthly interest.

Also, the minimum balance keeps increasing. It forces you to keep adding to your chequing account without earning any profits.

For these reasons, this doesn't seem like the best option, but if you have enough money to maintain the minimum chequing balance while still saving and investing, do it.

Negotiate Discounts and Get Alternatives at Your Bank

Another way to save money on bank fees is by contacting your bank to see if you qualify for a discount.

For instance, if you have more than one account with a bank, such as a line of credit and also a mortgage with the same bank, you may qualify for a fee waiver. All you have to do is speak with your account manager.

Ask questions, make requests, and you just may get a discount.

Join a Credit Union

Credit unions are nonprofit organizations owned by a few members. They have more benefits for people looking for lower bank fees. Many credit unions have lower offerings and rates.

Moreover, with credit unions, every investor is looking for maximum ROI. Every member of the union puts in work to make sure the group benefits, So, when there are surplus funds, you get a share of the profits.

Don’t Let Bank Fees Get You Down

Bank fees add up. If you spend $300 every year on bank fees, you'll have given out $1,200 to your bank in 4 years. Now imagine opening an account with a no-fee online bank that gives you cash back, or investing that money into a profitable venture. How much do you think you’ll have in 4 years?

While you think about that, you should also consider getting a high-interest savings account or one of its best alternatives, the KOHO full-service account.

KOHO accounts were created to help you avoid paying ridiculous bank fees. Don't stay behind and get robbed when you can keep all the money you make and even make more from it.