Go Into Debit

Sydney Morning Herald

Wednesday December 6, 2006

By John Kavanagh

Finally, a way to reduce bank fees and manage your account efficiently.

Customers who sign up for St George Bank's new range of flat-fee transaction accounts will receive an SMS alert service as part of the package. If your spouse has withdrawn the last of the cash on a shopping trip you won't be caught short.

The big banks have made improvements to their flat-fee transaction accounts this year. Apart from St George adding SMS alerts, ANZ has added a Visa debit card option to its Access Advantage account and Westpac has added MasterCard debit to Westpac One.

The banks have done good business with their flat-fee transaction accounts and they are keen to keep them up to the mark. According to the banking industry research group Cannex, the reason for their popularity is that they deliver on their promise of low-cost transactions.

Cannex has analysed Reserve Bank data on the cost of consumer banking over the past 10 years. In the late 1990s costs were out of control. Retail transaction banking fees increased by 32 per cent in 1998, 13 per cent in 1999 and 22 per cent in 2000. In recent years the rate of growth in fees has slowed - from 17 per cent in 2002, to 16 per cent in 2003, 12 per cent in 2004 and just 7 per cent last year.

Cannex puts this down to two things - the introduction of flat-fee transaction accounts and the wider availability of fee-free, high-interest savings accounts. The first of the flat-fee transaction accounts was ANZ's Access Advantage, introduced in January 2002.

Cannex figures show that flat-fee accounts really help to control the cost of transaction banking. It created a scenario in which a "high transactor" made 35 transactions a month - a combination of branch deposits and withdrawals, own-bank and foreign-bank withdrawals, eftpos transactions and cheque payments.

The cost of running an ANZ Access Advantage account was $7.63 a month compared to the advertised flat fee of $5. Most of that extra cost comes from using foreign-bank ATMs. Charges for those transactions are not covered in any of the flat-fee packages.

The cost of running Westpac One was $7, compared to an advertised flat fee of $5, Commonwealth Streamline was $8.63 (advertised fee $6) and NAB's Smart Access $6.62 (advertised fee $5). Without a flat-fee option such transactors would be paying much more.

Denis Orrock, the general manager of the banking industry research company InfoChoice, says costs of at least $20 a month would be the norm for people using older style transaction accounts.

You can get even cheaper transaction banking by going to a credit union or regional bank, some of which have fee-free transaction banking. But the trade-off is that access may be limited to the telephone and the internet. The appeal of the flat-fee accounts from the big five is that they provide the best access.

Cannex recommends that consumers split their retail banking between a flat-fee transaction account and a high-yield online savings account for the most cost-effective day-to-day banking.

St George Bank launched a new range of flat-fee accounts in November. Where more than one person uses an account, customers can arrange to receive an alert if the balance is running low. Head of deposits Lorna Johnson says St George has had an SMS service for a couple of years but this is the first time it has been a free option with a transaction account.

Two of the new St George accounts, Complete Freedom and Express Freedom include the option of a Visa debit card or a standard St George access card. Visa and MasterCard debit cards are not new. St George, the biggest issuer of Visa debit cards, has issued more than a million since 1985.

But more financial institutions are getting behind debit cards and more consumers are asking for them.

Debit cards have the functions of a normal access card - typically withdrawals, deposits and balance inquiries at branches, ATMs and eftpos terminals and can be used where credit cards are accepted.

Johnson says the appeal of Visa debit, apart from internet purchases, is its value

for overseas travel. It is valid at all overseas "points of representation" where a Visa credit card is accepted.

Since March, when ANZ issued Visa debit for the first time, it has opened 150,000 accounts. ANZ customers pay an extra $1 a month to have the Visa debit card attached to their Access Advantage flat fee transaction account.

John Harries, the managing director of banking products at ANZ, says: "There has been an explosion in online services. People are buying more things online and many of those purchases, such as iTunes, involve low-value payments. People don't want to use a credit card for those payments."

In September, Westpac made MasterCard debit a free option on its transaction accounts, including the Westpac One $5 flat-fee account. The Commonwealth and NAB do not have Visa or MasterCard debit cards.

© 2006 Sydney Morning Herald

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