Canadians pay an average of $220 each year in bank fees. Think about that for a second. You’re dishing out hundreds of dollars annually to pay banks for the service of keeping your money safely — money that they then use to lend out, at a price.
Indeed, banks wouldn’t exist without depositors. Lending is, after all, the main function of a bank, and a big contributor to multi-billion dollar bank profits. Banks need our money, so why is there not more outrage when it comes to the numerous kinds of fees that Canadians pay for simply making a transaction?
“It’s sort of an oligopoly here in Canada when it comes to the big banks,” says Marian Passmore, Director of Policy at FAIR Canada. “Because there are so few of them, they can easily get together and all charge fees.”
That’s not entirely true. There are actually alternatives besides the Big Five. Four Canadian banks provide no-fee chequing accounts: PC Financial, Tangerine, Alterna Bank and Canadian Direct Financial. Unfortunately, when it comes to moving banks, Canadians seem to have a high degree of inertia.
According to data from Ratehub.ca, only 17 percent of Canadians have switched from one financial institution to another over the past three years. But while loyalty is high, 59 percent of Canadians don’t believe their primary financial institution offers them the best rate.
“It’s kind of like giving up your email address. No one wants to do it because it’s logistically complicated,” says Passmore.
Interest on savings accounts at the Big Five are remarkably low, ranging from nothing, to 0.75 percent. By contrast, alternative lenders like AcceleRate Financial offer interest rates on savings accounts of up to 1.95 percent, higher than most big Canadian banks.
Yet, the majority of Canadians seem stuck in their ways when it comes to banking — 59 percent of baby boomers have held the same bank account for over 20 years.
And according to the Canadian Bankers’ Association, the vast majority of Canadians (78 percent) say they get good value from the service fees they pay.
Indeed, the trust factor in the Big Five seems to almost outweigh the financial pain of bank fees.
Why do banks even charge fees?
Since the 2008 financial crisis, banks have derived significantly less profit from interest rates — in 1981 for instance, the prime lending rate was 22.75 percent; right now, it’s a mere 2.95 percent.
Naturally, banks have been seeking out other ways to fill that revenue gap.
Just this April, CIBC raised its transaction fees for its popular “Everyday Chequing Account”, and doubled the account balance needed to avoid a monthly fee from $1000 to $2000.
At TD Bank, fees for withdrawals from non-TD ATM’s rose from 50 cents to two dollars.
In June, BMO increased its charge for a missed credit card payment due to insufficient funds from $40 to $48.
It is difficult to gauge just how much Canadian banks actually make from retail bank fees. In their annual reports, bank fees are aggregated with other service charges, thus making it impossible to extract the actual amount made from say, monthly account fees.
According to the Canadian Bankers Association however, service fees from retail customers account for roughly five percent of bank revenues. Last year, TD Bank raked in $34.32 billion in revenue — using CBA’s estimate, bank fees in one year alone generated $1.7 billion in earnings to TD.
Are our bank fees really that high?
The most common defence the big banks will present in the face of criticism is a 53-page report on bank fees, published in 2015 by the Financial Consumer Agency of Canada. That report posits that increases in the monthly fees levied on consumers’ deposit accounts have actually been quite moderate.
More precisely, the report says, monthly fees on chequing plans have increased “below the rate of inflation.”
Sure, that is not incorrect. For the last three years for instance, TD Bank’s Unlimited Chequing Account, has charged $14.95 monthly for unlimited debit transactions — it’s only this year that the charge will rise slightly to $15.95 per month.
But it’s the peripheral fees that make banking in Canada so expensive. In the U.K., only 16,000 of the 70,000 non-bank ATMs, charge fees for withdrawals. When a customer of one bank uses an ATM operated by another bank, fees are usually 25 pence per transaction. In Canada, it’s 10 times that amount.
“Several of the G7 countries would offer the potential for significantly greater economies of scale and competitive choice than Canada. Pricing of all kinds is still significantly national or regional in character, which could explain this difference,” says Ken Whitehurst of the Consumers Council of Canada.
“A lot of U.S. regional banks many not offer national ATM networks of their own, so they may be more willing to entertain interconnection at a lower price. Canada’s major banks are all national and operate national ATM networks,” Whitehurst told VICE Money.
Consumer outrage, or lack thereof
For now at least, Canada’s biggest banks show no sign of making banking more affordable. And why should they? If consumers grudgingly accept high bank fees, despite the cheaper options available to them, there will be no incentive for banks to reduce fees. They are an oligopoly, after all, and our inertia only reinforces that economic model.
Moreover, the NDP, that once led the charge against high bank fees, has shied away from bringing the issue back up again since its crushing defeat in the last elections.
But consumer outrage can certainly work, as we’ve been seeing in the CRTC’s slow but effective dismantling of the Rogers-Bell-Shaw cable company oligopoly.
After RBC announced it would charge customers transaction fees for payments on their loans and mortgages, Democracy Watch, an Ottawa-based advocacy group started lobbying the government to investigate those bank charges.
Shortly after, RBC canned the whole plan.