Breaking down bank fees

In either case, fees are a way of recouping banks’ costs (for example, staff salaries; overhead costs for brick-and-mortar branches; the admin involved with approving a loan or mortgage), but also a way to meet the demands of their shareholders. “The reality is, this is what banks do,” says Mahima Poddar, SVP & Group Head, Personal Banking, Equitable Bank. “They’re there to make money for their shareholders, and they do have a responsibility to grow those profits quarter over quarter, and increasing fees is a very normal way to do that.” So it’s not surprising to see them making this move. According to the Canadian Bankers Association, 5% of big bank revenue comes from fees charged on everyday banking accounts. 

Some banks waive fees if you maintain a certain amount of money in your account. Who does that benefit?

Banking customers may be able to avoid paying fees if they maintain a balance of, say, $4,000 or $5,000, in their accounts. That’s actually a benefit to the banks, because the money customers deposit in those accounts has real value to them, Poddar explains; they’re able to lend out those same dollars to somebody else and earn interest and other fees on that loan (though they always keep the deposits safe and make them available when the depositing customer needs their money). 

Poddar describes minimum balances as “a bit of a catch-22,” in that maintaining them can reduce banking fees for customers, but banks also count being able to charge the full monthly fee to customers who fall just a few bucks below the minimum, for even a day each month. 

Like banking fees, minimum balance requirements at many of the big banks have been going up, too. It’s possible that’s a reflection of the fact that during the pandemic, many high-income households have boosted their savings rates, and so may not have been dipping below their minimum balances, resulting in fewer fees to collect. According to the Bank of Canada, Canadians accumulated on average $5,800 in extra savings by the end of 2020, and a lot of it is sitting in the bank. Lawrence Schembri, Deputy Governor of the Bank of Canada, noted in a March 2021 presentation that “The total value of personal deposits in banks increased by $150 billion between February and December 2020.” 

Not all banks charge fees

It’s important to note that consumers’ everyday banking fees weren’t hiked across the board. RBC, for instance, has chosen not to make any changes, and while National Bank has raised some fees, it also now offers all of its clients aged 18 to 24 a discount of up to $15.95 per month on banking packages, even if they’re not full-time students. 

And there are challenger banks, like EQ Bank and Simplii Financial, that don’t charge any fees at all. How is this possible, when even challenger banks are businesses with shareholders to satisfy? Poddar explains that in the case of EQ Bank, this is because like the big banks, they loan out money deposited in their customers’ accounts, but limit their profits in favour of passing along savings to their customers.

So, if you’re looking to save money on fees—and depending on your banking and spending habits, they can add up—it’s worth investigating whether switching to a low- or no-fee bank account is a smart move for you.

About Alex Mlynek

Alex Mlynek is a writer and editor with more than 20 years’ experience. She's written for such magazines as Report on Business and Reader's Digest. Her first job out of journalism school was at MoneySense.

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