As a young boy living in Durban, I vividly remember my Mom and I waking up extra early on a special Saturday morning, catching the inner-circle bus, dressed in our best, to visit a local bank branch, the closest of which was about 15km from home.
I also recall watching her use an ATM for the first time – I was amazed at how far technology had progressed, and wondered: “What next?”
Those feelings that banking created in me stand in stark contrast to the thoughts that we as consumers have when we think banking today.
Being close to the transactional finance world, this discrepancy has always amazed me.
I recently saw a reflection of my young self and the sense of awe I held in my young son, who for the first time used a point of sales (POS) terminal to pay for a video game he had saved up for, and the answer to this discrepancy seemed so obvious…
The feelings that money gives us as kids are driven by the potential value created in our lives with the “stuff” money can buy, but as adults these feelings are overcome by the perceived rigmarole, effort and cost that managing one’s money brings, and most of these feeling are attached to banks as the middle man between us and our money.
When you explore these negative connotations and their origins, almost always the first answer you get is: “I pay too much.”
The idea of paying someone to manage your money almost seems absurd when you realise that you almost never get to enjoy your full take-home salary due to bank charges and fees.
Banking is commonly known as a grudge purchase, and most of us can relate to the first time we were asked to open an “adult” bank account, when we first started working.
Someone insisted on a current or cheque account, and the youth account many of us used until then just did not make the cut.
This introduced us to the real world of banking, where money management and budgeting actually cost something.
I was livid when I had to pay almost R80 out of my first pay cheque for my bank account, and they did not even ask, they just charged me.
Over the years I have been “upgraded” as my salary grew, and the consultant always gave me some arbitrary reason such as, “You don’t qualify for the blue/green/red account, you have to get a gold card now…”, and this always came with higher fees, which they said had to pay for the better “value” you receive.
When I started working at a bank, in the transactional space, this stayed with me.
I was convinced that this was wrong and that I needed to do something to fix it – and then it hit me. Wading through the intricate processes, interbank agreements, card production schedules and cash handling costs, I realised that there is a lot that goes on under the proverbial tip of this iceberg.
A world without banks
I slowly realised that the negativity surrounding banks is somewhat unfounded.
Imagine for a moment that banks and financial institutions did not exist, and that all financial transactions had to be conducted personally – how would your world look?
On payday, your manager walks past your desk with an envelope and drops it on your table.
You would immediately have to open and count the contents for accuracy, and match this to your payslip to ensure that no mistakes were made.
You would then first pay your taxes and then spend the next few days standing in a number of queues paying your bills.
First clothing stores, then your vehicle and home (hope that’s one line), then move to your insurance company and telecoms providers (all three of them).
Don’t forget your security company, and the money you send to your parents, as well as your car tracker and pay-TV account.
Retirement annuity contributions come next, followed by the body corporate levy.
We would then lastly have to pay school fees and hope that all these organisations have the correct change!
Where would I then keep the excess cash, or who would lend me some if I needed it?
How would I manage my security?
And what happens if I needed more cash than I have on me in person in an emergency?
Remember, no banks mean no ATMs or branches.
I am sure that you all would agree that money management would take on a totally different meaning – and what about all those paper cuts from handling those notes!
You’re probably shaking your head and wondering what this crazy person is on about, as that’s quite a far-fetched thought seeing where we are at the moment, but I hope that you now have a bit of an appreciation for the service that is banking.
The many systems that connect the local store and the garage that provides your petrol, to your personal bank balance, and connects the different banks so you can use another bank’s POS terminal or ATM if you cannot find one of your bank’s devices, the ability to swipe your card in Mozambique or Mauritius and have the currency convert real-time to buy an ice cream on the beach, all of which we hardly think about as these service are just expected to be there.
Several million transactions flow through a well-established payments system in South Africa on a daily basis.
It is one of the most advanced in the world, even than that of the US, where chip cards are still relatively unheard of. These advances keep our assets safe and allow us to participate in the economy seamlessly.
This, however, is not a reason to roll over and just accept all bank charges that are thrown at us.
We need to be constantly vigilant, to ensure that we are paying as little as possible and maximising value for the fees we do pay.
6 WAYS TO SPEND LESS ON BANKING FEES
Here are a few tips that I have gathered over the years:
1. Ensure that you are on the correct account type – you shouldn’t just be using a specific account because you earn a certain amount, it should suit you as an individual.
A very relevant example is that all high earners are usually given “bundles” that cost in the region of R500 a month, giving access to a variety of benefits such as airport lounge access and extended travel insurance, while in fact very few customers actually use this feature on a basis that warrants the fee.
Rather choose a cheaper account (usually gold at around R100 incorporates all required features), and contribute the savings toward your travel budget where you could rather pay for the additional services and have lots left over.
This could amount to annual savings of almost R4 800.
2. Always watch for “hidden” costs that you could manage. A very real example is the home insurance cover that you have signed for when taking out your bond.
Make sure that the values that are included in the policy are accurate and valid, and shop around. You are bound to get it cheaper elsewhere if you look hard enough.
3. Consolidating debt into a single account/product saves you paying numerous monthly service charges.
These usually cost R57 a month. Consolidate your debt under your cheapest product, e.g. your overdraft, and work on a plan to reduce the exposure.
The savings from the higher interest and service charges can take years off the repayment period.
4. Shop around. All too often I have heard the argument, “My bank knows me, I did not go anywhere else when looking for my home loan.”
In this day of centralised credit decisioning, tenure means very little.
Most of the information used to determine your interest rate is contained in the likes of credit bureaus, so shop around for the best rate and play banks off against one another.
They all want your business.
5. Use free credit to your advantage. Most banks have 55 days credit free on their credit card.
Pay off the card fully before the cycle ends. Know your credit cycle and make the most of it.
6. Shop around for savings rates. Many banks have specials that run for various periods, depending on their capital needs.
Take advantage of higher rates when offered. Keep an ear to the ground, bookmark web pages of the various banks that contain these rates and visit them at least once a month to ensure that you are getting the best rate.
If you are not, approach your bank to change your rate, which they would most probably do, or move your money.
Take your power back and actively manage your finances.
Seemingly small changes in the short term, when compounded, can result in massive returns in the longer term. Banks thrive on the inactive consumer; do not be one.
Shivesh Maharaj is head of product and business development at Alexander Forbes.
This article is part of our April 2018 Collective Insight supplement, which appeared in the 26 April edition of finweek. To download the entire supplement, click here. Buy and download the magazine here. Subscribe to our weekly newsletter here.