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avoiding bank fees

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I remember the first time I went over the fees on my bank statement in Israel.  When I made Aliyah I did not even know the word amalah (bank fee), but from learning Bava Kama, I knew the word knas (fine).  The conversation went like this:

Me:  What is the bank charging me ₪ 30 as a knas?

Banker:  You’re not paying any knas, these fees are being paid as an amalah.

Me:  What’s the difference?

Banker:  Well, an amalah is a bank fee and a knas is a fine.  This isn’t a knas because you didn’t do anything wrong.

Me:  Then why are you taking ₪ 30 from me?

Bank fees are out of control.  And don’t think this phenomenon is limited to Israel.  My bank in the US used to be Washington Mutual, a bank who prided itself with the slogan “we don’t nickel and dime you.”  Of course after the recent crash, it was taken over by Chase, who, to say the least, nickel and dimes like no tomorrow.

In fact, in the wake of the recent economic meltdown, most US banks have increased their bank fees.  Basically, not enough money is being made on loans and the CEO’s salary (and bonus) has to be paid, so it’s up to the little guy to make the difference.

Israeli banks have also increased their bank fees in the recent years.  Some fees are supposedly meant for users to try other mediums (₪ 6 shekels for using a teller, but only ₪ 3 if you use an ATM) and some are just a slap in the face (20 shekels PER MONTH for just having the ability to use a credit card.)

The real reason this happens is for two reasons, (1) collusion and (2) price discrimination.

Collusion:  The market basically dictates how high or low bank fees can go.  But when several banks decide to act together in order to dictate policy, our oligopoly turns into a cartel and banks can pretty much get whatever they want out of whomever they want.

Price discrimination:  As mentioned above, many banks raised the bank fees for people who use the teller, supposedly in order to encourage ATM usage.  I suppose they think that the incredibly long line at the bank is just so inviting that I would love to spend 45 minutes on line instead of using an ATM.  So who still uses the teller inside for simple transactions?  People who cannot use the ATM.  In many cases, this includes immigrants and the elderly.  These people will probably not put up much of a fight over a hike in bank fees, mostly because they lack the ability.  Banks are using a simple economic tool of price discrimination in order to extract the greatest amount of money from each individual market segment

So if this is true, who pays the least bank fees?  The answer is obvious – whoever makes the biggest stink over bank fees will pay the least.

The deals are there, you just have to look for them and be aggressive when setting up your account, and if need be, move to another bank.


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