How to work around bank charges

Amit was shocked when he logged into his internet banking account.

He checked the entries in his savings bank account and noticed deductions under various heads to the tune of Rs 1,000.

Amit isn't alone in experiencing these sudden deductions from his savings bank account. There are many of us who are caught unawares.

But the bank is mostly right in taking these charges.

Significant levies

Charges or fees levied by banks broadly fall under three categories. Penal fee, such as those for non-maintenance of minimum balance, regular service charges such as those for ATM cards, internet banking etc. and finally specific fee, such as that for setting up a standing instruction. And, these charges are not small sums.

For example, public sector banks such as SBI, PNB, Canara Bank and Bank of Baroda charge Rs 150-250 for not maintaining a minimum quarterly balance of Rs 1,000.

In the case of private sector banks such as ICICI bank, HDFC Bank, Axis Bank and Federal Bank, the minimum quarterly/monthly balance requirement varies from Rs 1,000-10,000. And, charges are as high as Rs 750 for non-maintenance.

How do you minimise these charges and do you have recourse if you think you are unfairly penalised?

You may assume that opting for a ‘no frills' account with zero-balance facility would be a solution.

But, true to its ‘no frills' tag, these accounts have restrictions on withdrawals and limited availability of ATM or internet banking facilities. Moreover, what is offered as free, like an ATM card, may be free just for the first year.

Besides, in many cases everything else such as cheque leaves, passbook, internet banking, etc may come with a fee. Also, such accounts have upper limits for transaction amounts. In the event of exceeding it, the regular savings accounts rules would apply.

However, you may have some respite if the recommendations of the Damodaran Committee on Customer Service in Banks is implemented. On minimum balance charges, the report says that banks should not deduct penal fee without informing the customer.

Intimation should be done by an SMS/email/letter to a customer immediately on breaching the minimum balance amount.

That way, you could be more vigilant.

Further, there is also a suggestion to impose a charge that is proportional to the shortfall in minimum balance.

So if Rs 250 is the penalty for not maintaining Rs 1000 balance and you have Rs 500 in the account, a levy of only say Rs 125 may be imposed.

Maximise ATM and internet banking use

Charges for non-maintenance of minimum balance is only one part of the story.

Charges for ATM cards range from Rs 100-500 for many banks depending on the spending limits and the additional features provided to you. Besides, accessing accounts and executing transactions through internet banking is something that most banks are promoting. Many banks offer this for free in the first year and start charging from the second year. This can begin from Rs 100 a year.

These may seem small sums individually, but if all of them fall due in the same month, it can pinch.

Given the utility value of both these facilities, the charges may be reasonable for ATM cards and internet banking. But you can still maximise benefits by registering and paying all your utility bills online or through an ATM.

Payment of mobile bills, insurance premiums, electricity charges and such other services is free of cost.

In fact, you can even do away with internet banking as most transactions that are done through internet banking such as paying utility bills, fund transfer, or opening a fixed deposit can also be done through an ATM too.

Alternatively, you can opt for mobile banking.

Once you register with a utility, you would be prompted to pay the bill each time you log into your internet banking account if the due date is round the corner. Standing instructions can be a good source of income for banks, not so for you. If you are transferring amounts to someone regularly, say every month or paying an insurance premium with similar frequency, you tend to set up a standing instruction with the bank to debit the amount.

Use standing instructions sparingly

This isn't cheap. Setting up an instruction costs Rs 50-150 and executing it every month will mean up to Rs 25 taken away for a transaction.

So just for two such transactions, you would end up paying Rs 600 a year, in addition to the initial cost of setting up the instruction.

A better way is to pay your insurance premium online and use the NEFT mode to transfer money to your near ones. NEFT charges for transactions less than Rs 1 lakh is just Rs 5.

The Damodaran committee has also asked for banks to notify any new charges or penal fee at least one month before levying them.

Also, visit your bank's Web site that would give you the complete list of service charges for various transactions and compliance issues.

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