Fee-free and low cost banking
Overview
Banks provide a range of basic bank accounts to the community.
At a minimum, the banking industry offers basic bank accounts to six out of every ten Australians. By the same token, the actual coverage of basic banking extends well beyond this. Most bank customers enjoy access to basic account banking, given the broad range of mainstream products in the market that satisfy ‘basic banking’ criteria.
Over 130 basic bank accounts are offered by banks to groups as diverse as seniors, students, people on low incomes, farmers and home buyers.
What is a ‘basic bank account’?
While all mainstream Australian retail banks offer a product that satisfies the description of ‘basic bank account’, it is not possible to identify a single standard industry-wide product as such. One reason for this is the existence of a legal impediment that prevents banks from agreeing together over product design. The Trade Practices Act 1974 does not allow competitors to collaborate on the pricing of products, which includes setting a price at zero and determining features of basic bank accounts without authorisation from the competition regulator.
A proposed agreement between ten member banks of the ABA in 2002 to provide an industry standard for basic bank accounts was denied authorisation by the Australian Competition and Consumer Commission (ACCC) on the grounds such a move would not ‘expand consumers’ choice’.
Another reason is the recognition by banks that a ‘one size fits all’ approach to basic banking would fail to take account of the different needs of diverse groups of customers. For example, personal customers have different account requirements to small business customers. Other users – for reasons such as taxation or life cycle – prefer the benefits of their ‘basic account’ to take a form suitable to their situation.
A good starting point when describing a ‘basic bank account’ is that it allows customers to have an everyday transactional banking account with no account keeping fees and which includes some fee-free transactions.
The basic bank account includes basic features functions like having your benefits or wages paid in, making withdrawals or deposits, and accessing electronic payments networks. Advanced facilities such as a line of credit or access to an offshore account are usually considered to be beyond the concept of ‘basic banking’. |
Scale and scope of basic banking: extensive
Figure 1 the population of Australia into three groups:
-
children aged 0-18
-
concession card holders
-
other adults
These three cohorts provide a useful framework for assessing basic banking in Australia today, and give a good indication of its extensive availability.
Figure 1: Australian population, 2005
Sources: 1. Total population of Australia and population aged 0-18 years are from Australian Bureau of Statistics ( 3101.0), September 2005.
2. Figures on total concession card holders, for sources see notes to Figure 3.
3. Other adults represents adult non-concession-card-holders and is derived as a residual.
At a minimum, the banking industry offers free or concession accounts to concession cardholders (30%) and children aged 18 and under (25%), who together account for 55% of the Australian population of 20 million.
These two large cohorts – 6.0 million concession cardholders and 5.1 million children – immediately qualify for access to free or low-cost accounts. In many instances, such customers receive basic banking services free of charge.
Within the remaining 45 percent of people labelled ‘Other adults’ are many additional customers who can also access free or low-cost bank accounts.
Banks offer tailored basic products for approved customers from a diverse range of groups within the general customer category, for example:
An independent survey of banks shows there are currently 135 products available that satisfy the ‘basic account’ description, including many that can be utilised by customers who belong to the Other Adults segment. Figure 2 summarises the full range of ‘basic banking’ products offered by the industry.
To qualify for inclusion as a ‘basic banking product’ in the table below, the account in question has to satisfy the following criteria:
Please click here for a list of the basic bank accounts that satisfy the above criteria.
Figure 2: Number and type of ‘basic bank accounts’ in Australia
|
Category |
Account type |
Number of products |
|
1 |
Basic Accounts |
8 |
|
2 |
Business Cash Management Account |
2 |
|
3 |
Business Transaction Accounts |
16 |
|
4 |
Cash Management Accounts |
19 |
|
5 |
GST Accounts |
5 |
|
6 |
Online Accounts |
17 |
|
7 |
Business Online Accounts |
6 |
|
8 |
Junior Accounts |
7 |
|
9 |
Mortgage Offset Account |
4 |
|
10 |
Pensioner Deeming Accounts |
14 |
|
11 |
Personal Transaction Accounts |
17 |
|
12 |
Savings Investment Accounts |
7 |
|
13 |
Specific Accounts |
4 |
|
14 |
Student Accounts |
7 |
|
15 |
Christmas Club Accounts |
2 |
|
TOTAL |
|
135 |
Source: Cannex. Table based on definition of ‘basic bank account’ as accounts that offer at least 6 fee-free transactions per month and have zero account keeping fees.
Often, the benefits extend well beyond these two minimum requirements. For instance, around 40% of these accounts have no monthly transaction limit or give a full fee rebate. Many feature free electronic transactions. While some accounts require a minimum balance to be maintained, many others do not.
A key finding from the survey is that all mainstream retail banks operating in Australia offer at least one account that has no account keeping fee and at least six free transactions per month.
In 2002, the Australian Competition and Consumer Commission (ACCC) recognised banks’ efforts in this area, stating that ‘current basic banking products have developed as a result of competition amongst individual banks and competition has been sufficient to drive individual banks to innovate in the development of basic banking products’ (paragraph 5.92).
Basic banking for Concession Cardholders
In Australia, six million people over 18 years of age hold a government-issued concession card of one sort or another. Figure 3 shows the number for each category of cardholder.
Figure 3: Number of concession card holders
Sources: 1. Student card holders: Students ABS 2004.
2. Health, pension and seniors card holders: Australian Government, Department of Family and Community Services website, figures as at June 2005.
One major group of concession cardholders is older Australians. Banks operate pensioner deeming accounts for such cardholders, in all cases featuring:
-
no account-keeping fees (a relatively small minimum balance for this type of account is required for some pensioner deeming accounts to ensure no fees are attracted);
-
between seven and unlimited free transactions per month;
-
BPAY facility;
-
access to ATMs, EFTPOS etc.
In virtually all cases, a cheque facility is also offered.
The Commonwealth Department of Family and Community Services (FACS) publishes and regularly updates an independent survey on its website of financial institutions offering deeming accounts. According to FACS, an account is a deeming account if the bank pays interest rates generally based on the current social security deeming rates.
In its bulletin of 2 July 2004, FACS confirms the widespread availability of these accounts: ‘FACS advises that deeming accounts are offered by the four major banks, other banks, and a large number of credit unions and building societies’.
Types of cardholders
Commonwealth Pensioners Concession Card
Number on issue: 3.17 million. Held by older Australians who receive the Age Pension. Also in receipt are those on single parenting allowance, mature age pension or carer payment, or who are aged over 60 and receive a Newstart, sickness, widow or partner allowance, are eligible.
Commonwealth Seniors Health Card
Number on issue: 300,000. This card is for older Australians who do not qualify for the Age Pension. To be eligible, you must be an Australian resident, living in Australia, have reached pension age but do not qualify for the Age Pension, and have an annual income within those limits set by the Australian Government.
Commonwealth Health Care Card
Number on issue: 1.5 million. This card is for pre-retirement Australians in need. Eligible persons are those on Newstart Allowance, Exceptional Circumstances Relief Payment, sickness, widow or partner allowance, Special Benefit, youth allowance, parenting payment, mobility allowance carer allowance, foster carers and certain low-income earners.
Tertiary Student Cards
Number on issue: 977 000. Held by students enrolled at tertiary level and issued by universities and colleges. |
Sources: www.centrelink.gov.auand www.dest.gov.au. See also footnotes to Figure 3. Not included: state governments’ seniors cards (omitted to avoid double-counting as they mostly overlap with Commonwealth cards; upon presentation State cards generally receive concessions equivalent to Commonwealth cards).
Banks assist a further group of cardholders, low-income earners, by offering ‘basic accounts’. Included in this cohort are unemployed persons on Newstart, and those on sickness, widow, youth, partner, or mobility allowance, and so on.
A survey of these products by independent research house CANNEX shows that there is considerable choice regarding accounts that carry no account-keeping fees, offer six or more free transactions per month, and give access to electronic payments networks and BPAY facility. Some offer unlimited free transactions. In other cases, fees are waived on selected items like EFTPOS transactions, own-bank ATM withdrawals, other-ATM withdrawals and branch cash withdrawals.
Another major cardholder sub-group that banks assist is students. There are almost one million tertiary students in Australia and various banks offer access to ‘Student Accounts’ upon presentation of a current university card.
In addition to the usual benefits of a basic bank account, the majority of student accounts typically carry zero or low fees for Internet and telephone transactions.
Basic banking for Other Customers
For people in the ‘other adult’ segment, banks offer a wide variety of basic banking options.
As a general principle, customers who choose the account that best suits their needs, keep within transaction limits, and comply with ancillary incentives such as keeping a specified minimum deposit in an account, can often enjoy what effectively amounts to ‘basic bank account’ benefits.
Moreover, there are at least eight mainstream customer segments that can access accounts complying with the definition of ‘basic bank account’ used in Figure 2, ranging from GST provisioning accounts through to Internet-only accounts.
Five of these segments are detailed out in the illustrative case studies (see box below). They are based on actual products currently in the marketplace, and have been carefully compiled by Australian Bankers’ Association (ABA) using data independently supplied by CANNEX.
Case studies: basic banking for general customers |
Mick, age 42
Mick is a farmer in South Australia and doing it tough. Keeping costs to a minimum is important to his business. Mick can open a GST account and pay no account-keeping fee, no fee for direct debits or credits, no fee to obtain a balance at his bank’s ATM, no fee for deposits at his branch or account balance enquiries over-the-counter, and zero fees for all third party payments. Significantly for Mick, the account may mean he incurs no fees for unauthorised exceeding of overdraft limits. |
Lai Yin, age 33
Lai Yin has recently started her own graphic design business in Melbourne. She wants a basic banking service that is easy to use and inexpensive. She can open a business transaction account that satisfies the two ‘basic banking’ criteria - no account keeping fees and a minimum of six free transactions a month. On top of that, there are no direct debit or credit fees, no EFTPOS fee, no fees for transactions at her bank’s ATMs, no fees for branch transactions, no fees for telephone or Internet transactions. Another feature that is especially important to Lai Yin is that periodic payments to third parties - such as fortnightly salaries into employees’ accounts - are free. |
Dylan, age 19
Dylan is single and renting with a group of friends. He works by day and studies at night at TAFE. He is saving to buy a car and wants to minimise fees. Dylan can open a savings investment account that has the basic account features of no account-keeping fee and several free transactions per month. |
Margaret, age 57
Margaret has worked for the same company for eleven years and runs the staff social club, helping staff save during the year for the festive season. She can open a Christmas Club account and in addition to the usual basic bank account features, obtain a rebate for transaction fees on behalf of her members. Notably, Margaret and her colleagues need pay no fees on periodic transactions with third parties, such as salary deductions. |
Peter and Julie, both 37
Peter and Julie have recently purchased a home and are raising three children. The family budget is tight and every penny counts. They can open a mortgage offset account and pay no account keeping fee, enjoy unlimited free transactions per month, zero direct debit/credit fees, no fees whatsoever on a wide range of transactions using their branch, EFTPOS, own-bank ATMs, BPAY, telephone or internet. Cheque books and cheque transactions are free of charge and Peter and Julie receive a rebate from their bank on any residual transaction fees. |
Basic banking for under-18s
Banks provide basic bank accounts to people under the age of 18 under which are broadly categorised as ‘Junior Accounts’. Individual products within this category include ‘Piggy Bank Account’, ‘Best Buddies’ and ‘Teen Scheme’. While each bank’s product is unique, a survey of these accounts shows that on average these accounts:
-
pay interest;
-
there are no account keeping fees;
-
the number of free monthly transactions is usually unlimited;
-
most require no fees for ATM and EFTPOS transactions.
For children under 16 years, consent of parent or guardian is generally required to open and access an account.
Children can obtain the help of their local branch to set up a regular savings plan. They can have their pocket money or part-time job earnings credited directly into their account.
Junior savings account can be linked with transaction accounts, separating savings from spending money, helping children to save a set amount each week.
These accounts usually offer bonus interest when the child makes at least one deposit into their account and has no withdrawals during the month.
A free newsletter is often included with the account statement each quarter or half year, helping teach youngsters about money and offering access to a wide range of games and interesting information through specially designed websites.
Flexible access to funds is available, for instance by debit card, ATM or telephone banking.
|
Important notice: This Fact Sheet gives information of a general nature. It is not intended to provide advice to readers on any particular matter. Readers should consult the financial institution and/or their financial adviser further on how this information may apply to their own circumstances. |
Created: April 2006 / Updated on 30 Jul 2010 (updated NAB information)
Internet: www.bankers.asn.au. Ph: 02 8298 0417 Fax: 02 8298 0402
Top of page
Return to list of fact sheets |