Fee-Driven Banking Products ‘Taken to Task’

Are we being taken for fools on the essential banking products that we choose?

An interesting parallel has emerged between Australia and the UK in the world of personal finance: an enquiry into value for money on fee-driven banking products.

Australia: Credit Card Fees

About half of all Australian credit card holders are getting no value from their credit card rewards because of fees, it was reported last week. In most cases, annual fees are outweighing the value of rewards such as air-miles, and only very high levels of spending – roughly $60,000 per year – could make such benefits count.

Contrast this with the average annual Australian credit card spend of $17,000, which itself is artificially heightened by very high spenders, and we see the degree to which fees outstrip potential rewards.

A monthly spend of $1,000 could see fees exceed potential benefits by as much as a third in value even before interest is factored in.

UK: “Packaged bank accounts”

In the UK, it is ‘packaged bank accounts’ that are under scrutiny. These tend to include add-ons such as travel insurance, mobile phone insurance and breakdown cover for a monthly fee. The number of packaged accounts on the market has more than doubled in five years and almost one in five active adult accounts in the UK is packaged, according to data analysts Defaqto.

But they have come under scrutiny in recent weeks as banks are not believed to be doing enough to ensure that the products are suitable for the customer.

The leading UK financial regulator, the FSA, has proposed rules for banks and building societies who sell these accounts to ensure that customers require the additional policies and that they are adequately covered by them. One third of consumers with packaged accounts make no use of the additional benefits, it is estimated. Some may not even be covered by the policies.

A Fool No More

Fee-driven banking products are (at least partially) a by-product of banks and their operatives acting under pressure to find additional sources of funding. Redistributing the fee/reward ratio in favour of the banks is a brisk way to make additional profits on popular products.

There are now clear signs, however, that many of these fee-driven products are not always suited to consumers’ needs.

Australian consumers might do well to assess the structure of credit card deals and carefully consider the fee to benefit ratio, to see if their average credit card spend will work out in their favour.

See if Which4U can help you find the right credit card with smaller fees and help your money go further.

Keith McDonald

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2 Responses to “Fee-Driven Banking Products ‘Taken to Task’”

  1. Which4U – Finance Blog » Blog Archive » “Waste not, want not”: How Much Could You Be Saving? Says:

    […] may prove an interesting week of parallels. A recent post on our sister site’s Finance Blog in Australia compared details of how fee-driven banking products have come under scrutiny in both […]

  2. “All in this together”? Banking Bonuses in the UK & Australia « Which4U – Finance Blog Says:

    […] been the odd major banking scandal; the issue of fee-driven banking products; and the issue of payday loans, which is also gripping both […]