Bank of Ireland to change current account fee structures from November 2012

Bank of Ireland has announced that new charging structures will apply to current accounts from the fee quarter beginning 19^th November 2012. From this date onwards you must maintain a minimum balance of €3,000 at all times in order to avoid paying transaction fees.

Currently in order to avoid transaction fees you need to lodge at least €3,000 throughout the fee quarter and also to make 9 debit transactions per quarter using 365 phone or 365 online. This change is likely to impact on a large amount of people who are currently avoiding transaction fees.

In a previous post on our blog earlier this year, we wrote about the options available after AIB announced the re-introduction of current account fees in May of this year. Much of the same still applies and you can recap on that blog article here:  http://smallbusinessadviceireland.blogspot.ie/2012/05/minimising-cost-of-aibs-reintroduced.html

Should I transfer some money from my savings account into my current account to enable me to maintain a minimum balance of €3,000?

This will depend on what interest rate that you are earning on your savings account and what fees that you will pay to Bank of Ireland. If the interest that you will earn on your savings is less than the fees payable on your current account, then it makes sense to transfer money from your savings account into your current account.

Example 1

If you pay €20 per quarter in bank fees, this is a total of €80 per annum.

If you have €3,000 on deposit at an interest rate of 3%, you will earn €90 gross interest of which €27 will be taken as DIRT (Deposit Interest Retention Tax - currently charged at a rate of 30%), leaving you with €63. As €63 is lower than the €80 you are paying in fees, you would be better to transfer the savings into your current account to maintain a minimum balance of €3,000.

Example 2

If you are on the flat fee rate of €11.40 per quarter (which allows for up to 90 transactions to go in and out of your account) you are paying a total of €45.60 per annum.

If you have €3,000 on deposit at an interest rate of 3%, as outlined above you will receive a net amount of €63. As €63 is higher than the €45.60 you are paying in fees, you would be better to leave the money in your savings account and instead to incur the current account fees.

In this same example however, if you have €3,000 on deposit at a lower interest rate of 2%, you will earn €60 gross interest of which €18 will be taken as DIRT, leaving you with €42. As €42 is lower than the €45.60 you are paying in fees, you would be better to transfer the savings into your current account to maintain a minimum balance of €3,000.

Which banks are offering fee free current account services?

Currently Ulster Bank is the only bank offering fee free banking. They had previously indicated that this would change but after the massive recent IT meltdown they have advised that fees for current account services will not be introduced at least until July 2013. However the fact that a date has been provided suggests that fees will definitely be introduced at some point.  

Dublin Accountants and Tax Advisors  www.fenero.ie

Minimising the cost of AIB's reintroduced current account fees

From today AIB customers face the reintroduction of fees on current accounts. Customers will need to maintain a balance of at least €2,500 in their account at all times in order to avoid transaction charges. For those who do not maintain this level of cash in their account, the following fees will apply:

€4.50 flat rate maintenance fee per quarter

20 cent for every electronic transaction (e.g. ATM withdrawal, laser/debit card, direct debits, online transfers)

30 cent for every paper transaction (e.g. lodging a cheque, branch withdrawal of cash, branch lodgement of cash)

So what are the options for avoiding these fees?

1. Move €2,500 from a savings account into your current account

2. Understand the fees and attempt to minimise them

3. Move to a new bank

1. Move €2,500 from a savings account

If considering this option you need to make a rough calculation as to whether the interest that you will earn on the savings account is greater than the amount of fees you will be charged on your current account. Currently the maximum that you may be able to earn on deposit accounts is in the region of 4%. If you have €2,500 on deposit earning a rate of 4% this will pay you €100 annually. You will then pay 30% DIRT on this, leaving you with a total of €70. If you expect that the annual bank fees on your current account will be greater than €70, it would therefore be worthwhile forgoing this interest and transferring €2,500 from your savings account into your current account.

Under the new regime in order to be charged €70 per annum in transactions fees, you would only need to make between 6 and 7 electronic transactions per week e.g. two ATM withdrawals and 4 uses of your laser/debit card per week. This is not a huge amount of usage for most people. Your monthly direct debits would be additional electronic transactions on top of this.

Given the fact that it is quite easy to reach a level of transactions costing €70 per year, plus the fact that 4% is a good rate of interest of savings and you may well be earning less than this (also that deposit rates are likely to start falling in the near future), it appears that in many cases you would be financially better off to transfer €2,500 from a savings account into your current account.

2. Understand the charges and seek to minimise them

The €4.50 quarterly fee is a flat rate fee so you have little control over this. However you can seek to minimise costs by using less paper transactions (charged at 30 cent) and more electronic transactions (charged at 20 cent). You can also attempt to reduce the number of electronic transactions that you make by availing more regularly of cash back options when using your laser/debit card (as this will only count as one transaction) or by withdrawing larger amounts from the ATM rather than regular small amounts. However practicalities are likely to limit the options realistically open to you in attempting to minimise the number of transactions that you make.

3. Move to a new bank

As ever there is the option to shop around and switch banks. However in the current climate all banks are under pressure to increase their income, most likely through service fees, so this is an area that you will need to watch carefully.

Ulster Bank – currently still do not charge fees on current accounts. However indications are that this may be likely to change in the near future.

Bank of Ireland – there are two ways to avoid fees on current accounts. The first is to lodge a minimum of €3,000 per fee quarter (e.g. €1,000 per month, which could be your salary). It is not necessary to maintain a balance of €3,000, just simply to have it lodged. Additionally you are required to make 9 debit payments over the fee quarter using online or telephone banking (e.g. 3 per month). Alternatively if you are not making regular lodgements to the account and can instead maintain a balance of at least €3,000 throughout the period you will avoid transactions charges.

Permanent TSB – to avoid current account fees you must meet a number of criteria. You must lodge a minimum of €3,000 to the account per fee quarter, make 18 card purchases and conduct one transaction using Open 24 internet or telephone banking.

If you believe that you cannot meet the criteria for any of the above free banking options with any of the banks, you should review the pattern of your current account usage to determine the average volume of transactions and the typical nature of the transactions. Armed with this information you can then review the fees chargeable by each bank to see which is likely to work out the cheapest for your own typical account usage.