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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.


4 Comments

  1. Genius says:

    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.

    I maintain relationships with two banks in America. One is a local brick-and-mortar bank where I have a savings and a checking account, and one is an online checking account. I don’t pay a cent in fees to either of them, and I don’t have a minimum balance, either. It’s very easy to get no-fee checking in America.

    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.

    You’re not framing the issue correctly. The market WOULD dictate how high or low bank fees could go if there were free entry into the banking market. But the government established very high barriers to entry, in effect creating an oligopoly, and every action of the banks is regulated so carefully that, because they know the competition is so limited, their best way to generate more revenue is to raise fees. Moreover, we know from history that the government can and will confiscate banks through nationalization, so the incentive for banking executives is to make as much money as humanly possible in the short run instead of investing in their companies’ long term development.

    When any Ploni Almoni can set up a kiosk and start banking from it freely, you’ll see that bank fees will disappear.

    • jonnydegani says:

      I think that may be the funniest, and perhaps the most correct, assessment of the banking crisis in developing countries. But Israel is trying to de-nationalize its banks right now. If the banks do not take this chance to act responsibly, if they continue to warp from a oligopoly into a cartel, then public rage will flair up and the people will demand that the government take over them (not that this is better, it is just a matter of short-term revenge.) It is a vicious cycle.

  2. Devorie says:

    Re credit card fees. Most credit cards in Israel are issued through your bank account. If you switch banks, you need to get a new credit card and update all of your automatic payments. When I had this kind of credit card, I paid CAL 20NIS a month for the luxury of having a credit card. I also paid annual “insurance” fees, and switching banks was a real hassle.

    Leumi offers credit cards that are “hutz bankai,” meaning they are not linked to your bank account. They are paid through “hora’at keva” (automatic payments) from your bank account, but if you switch accounts all you need to do is sign a new hora’at keva with the new bank information, and your card moves with you. It’s very convenient, and the fees are incredible. The Leumi Free card does not cost ANYTHING – but you also don’t collect “points.” I’ve never used the points on my credit card, so this was a fair trade for me. You also have to agree to view your bill online, which I do anyway. I’ve had their card for over a year, and I’m very satisfied.

    I also have their “shufersal” card. There are no fees for the first year, and afterwards the Leumi fees are 8.88. Shufersal just added another 3NIS monthly membership fee (I’m still looking into WHY). For me, it’s worth paying the fees, since I shop primarily at shufersal and the card gives me great discounts and coupons. The card does accumulate points. They have other types of cards, such as a credit card that gives you mall discounts, so you don’t need to be a shufersal customer to enjoy it.

    I believe isracard has also started issuing “hutz bankai” credit cards, but I don’t have any personal experience with them.

    The combination of no-fee and no-hassle when switching banks made this a real winner for me.

  3. 4daughters says:

    I have a completely free credit card called Leumi Free. No fees and no points. I wasn’t using the points on my Isracard anyways! I can now save 240 shekels a year. I’m going to switch my husband over once all the tashlumim are done (car insurance etc) to and then we can double the savings.

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