The Cost of Services

Did you know that in 2017-18, the three major private banks along with 21 public sector banks collected a mammoth Rs 5,000 crore from accountholders for just non-maintenance of minimum balance in their accounts? The minimum average balance (MAB) in bank account varies across banks and the location from where these accounts are operated. So, the MAB varies for metros, urban and rural centres and so does the charge depending on the bank in question. In fact, banks have fairly steep charges on the actual MAB in the account as well.

For instance, SBI accountholder in metro cities need to maintain at least a sum of Rs 3,000 as monthly average balance in their savings account. If the MAB falls between Rs 2,999 and Rs 1,500, then the account holder pays Rs 30 as penalty. If the average balance at the end of the month comes out to be anywhere from Rs 1,499 to Rs 750 then the penalty for non-maintenance of MAB is Rs 40, and Rs 50 if the MAB is below Rs 750. So, the lower the MAB, the higher the penalty that one has to pay. These charges are not arbitrary and in fact, the RBI allows banks to levy service charges or miscellaneous charges.

What do you pay for?

While many accountholders may not realise, they actually land up paying for a whole range of products and services that they take it for granted. Several conveniences which keep you from visiting your bank branch also come at a cost, even though it is the bank which actually discourages you to visit the branch. In fact the non-maintenance of average monthly balance pales in comparison to the other charges and penalties that banks impose on customers.

Debit Card Charges: Today it is mandatory to have a debit card the moment you have a savings bank account. Banks charge you an issuance fee and annual maintenance fee for the same, which may range from Rs 100 to Rs 800 depending on the bank, the type of account or card issued. For instance, if you ask for a personalised debit card with your picture or a particular colour or affiliation; the charge would vary and you could get what you ask for at an additional cost.

Cheque book charges: Most banks offer a free cheque book for every quarter with approximately 20-25 leaves. If you require an additional booklet within the same quarter, you may have to pay an extra charge of about Rs 100. In case of premium accounts with higher average balance, extra charges for additional cheque books are usually waived off. However, such accounts land up paying a higher maintenance fee or charge.

Internet Banking Fee: Banking apps and internet banking is convenient, but it also comes at a cost. Yes, many of the facilities offered for online banking are not charged, transfer of funds through NEFT (National Electronic Fund Transfer), IMPS (Immediate Payment Service) and RTGS (Real Time Gross Settlement Systems) are chargeable. The charges are clearly mentioned by banks when one opts for any of these services. Typically, when sending money through NEFT or IMPS, you may need to pay between Rs 5 and Rs 25 depending upon the amount you are transferring. The charges in case of RTGS are higher.

Cheque Bounce Charges: If the cheque that you have issued or deposited bounces; you are liable to pay charges for the same to the bank concerned. These charges are usually higher if you are the one who has issued the cheque in comparison to the charges for cheques issued by third parties. It may vary from Rs 200 to Rs 800 depending upon the bank and the reason because of which the cheque was not cleared.

Cash transaction charges: The use of the ubiquitous ATM also comes at a cost as banks have revised charges over cash transactions. For instance, you may have to pay a fee after the first four free transactions in a month at an ATM. There are charges when you use a non parent bank ATM and so on. The charges vary across banks, but typically there is a minimum transaction fee.

Most banks revise these charges and fee from time-to-time, which means you need to check on the charges to be aware of what you pay when using certain facilities. Likewise when you use a credit card, you need to pay charges towards annual fee and late fee. These days a lot of these charges also attract GST, which means your effective cost of using banking services are not as free as many of us presume. So, the next time you are using a banking facility; make sure you are aware of what you are being charged or pay for.

The no cost EMI Myth

The online world is attractive and luring for shoppers with attractive pricing and enticing schemes which makes one forget to check the real cost of products. The convenience to convert online purchase into EMIs or marketing no cost EMIs are among the most preferred by consumers. However, there is nothing called no cost EMI. Way back in 2013, the Reserve Bank of India (RBI) banned banks and lenders from offering 0% EMI scheme on retail products. And although no cost EMI seems that you don’t need to pay the interest on the loan, it is not so in reality.

Take for instance a product that is priced at Rs 30,000 is offered to you for three month instalment of Rs 10,000 each for you to assume it is a great deal. However, if you were to pay for the full sum, you will get a discount of Rs 500 or more, which is exactly what you forfeit when you opt for a no cost EMI. The cash back equivalent is the interest that you land up paying in the EMI. Yes, EMIs unburden you from committing a big cash flow at one go, but it does not mean that it comes for free.

Many lenders offer loyalty points on purchase on EMIs, which may be attractive, but don’t fall prey for these as well, because you can use these points only on certain purchases. Simply put, No cost EMIs are marketing tools where the interest on the loan is built into the EMI except that the break up may not be clearly visible to the buyer upfront. Such loans are normally for short tenure of 3-9 months, and if one looks deeper into the terms and conditions of the deal, chances are you will be able to spot the actual interest cost that you eventually land up paying.

(A marketing initiative by Open Avenues)

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