Bank Accounts Cost More Than Credit Cards

Bank Accounts Cost More Than Credit Cards

The Age

Friday May 16, 2008

Vanessa Burrow, With Chris Zappone

AUSTRALIAN households are paying $4.4 billion in bank fees and a big portion of it is coming from their deposit accounts.

The Reserve Bank's annual survey of bank fees, released yesterday, found Australian households had paid about $1.7 billion in fees on their deposit accounts last year, and more than $1.1 billion in fees on their credit cards.

"Fee income from households (is) growing faster than fee income from businesses," the report said.

But fee income from businesses is rising at a faster rate than usual, at 4% a year, and contributed $6.1 billion last year. Total fee income jumped 8% to $10.5 billion.

For the past eight years, fee income has risen an average of 9.1% a year, although the growth rate has slowed dramatically in the past four years.

However, after surveying 19 banks that accounted for 90% of the total assets in the Australian banking sector, the RBA found the growth in fee income was "mainly the result of greater use of banking services, rather than higher unit charges".

Chief executive of the Australian Bankers' Association, David Bell, said Australia's strong economy had improved demand for banking services.

"The past two years has seen the strongest demand for banking products and financial services on record, driven by growth in wages and real incomes, employment, low unemployment, population increases and company profits," he said.

However, more recently, Australian banks have reported slower profit growth because of the US subprime mortgage crisis that has extended to the global credit markets.

And they have increased lending rates on home loans, personal loans and credit cards to compensate.

The RBA found, during 2007, households paid 12% more fees on credit cards. Some banks increased their annual credit card fee, while others charged late payment fees, over-limit fees and foreign currency conversion fees more enthusiastically.

"The fees haven't changed but there are more things people can be charged for," said Professor Stephen Worthington, from Monash University's business and economics school.

The number of credit card accounts has risen by 30% and the value of cash advances has risen by 20%. However, no-frill credit cards, without frequent flyer points or reward schemes, had also become more popular.

Citing another RBA report, CommSec chief equities economist Craig James said Australians were keeping a tighter hold on their credit cards.

"The average credit card balance has risen by 3.7% over the past year, the slowest annual growth since records were established 14 years ago," he said.

"The average credit card balance stood at $3056 in March, down from $3086 in February." -- With CHRIS ZAPPONE

KEY POINTS

? The Reserve Bank says Australian householders pay $4.4 billion in bank fees.

? The cost of bank accounts, at $1.7 billion, is greater than the $1.1 billion in credit card fees.