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Rule your bank, or it will rule you

By Bindisha Sarang, Outlook Money
July 10, 2009 13:02 IST
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If poet Horace had been alive today, he might have written: "Rule your bank, or it will rule you." Most of us pay tidy sums to our banks as interest and fees even when most of it is avoidable. Understanding how banks charge you will let you gain more from your banking relationships.

Channel costs. Like any other business, banks, too, are trying to cut their costs. You can help by transacting through a channel that works out cheapest for the bank. The branch is the costliest. Next comes the ATM, followed by the Internet and your fixed line or mobile phone. It helps you too.

For instance, at ICICI Bank, a duplicate statement will cost Rs 100 at a branch or customer care centre (non-IVR), but Rs 50 through customer care (IVR), ATM and Netbanking. In fact, the last three can take care of most common banking needs. Get the drift? Embrace technology.

Know your charges. When you opened your last savings account at a bank did you ask for the rules and regulations and list of charges? Few do. While some banks will mail it to you after you have opened the account, most won't even bother.

But you should know your rights, obligations and the bank's charges. Once you do, you are, for instance, likely to be more careful about maintaining your average quarterly balance. So, be aware.

Go paperless. If you use paper instruments, someone at the bank has to deal with them. If you use computer-based automated channels, they don't have to. That keeps costs down for banks and, in turn, for you. So, rather than write a cheque, pay your bills either over the Internet or the phone. For loan repayments, opt for the electronic clearing service option. So, shun paper, save the trees and money in the process.

Smart deposits. As for earning more from your bank deposits, you can use sweeper accounts. Here, as soon as a specified amount above what you want in the account accumulates, it goes into a fixed deposit. Amar Pandit, CEO of wealth management firm My Financial Advisor, says, "In a sweeper account, you can earn interest of 4-10 per cent."

Debt control

Apart from these, your other banking relationship will broadly pertain to loans. The thumb rule for keeping things in control here is never to spend borrowed money to buy anything that is not an asset you can liquidate to pay off the debt. Look at the ones who perpetrated the sub-prime crisis. The borrowers who could not repay the loans had to turn in the assets that the banks held as collateral.

If you have borrowed to get an asset that can be sold, even if prices fall, you will still be able to get out with a few bruises at worst. Typically, asset-backed loans are those for homes and cars or two-wheelers. At a stretch, you could even include study loans. While the last is a little different from the first two, you still have an 'asset' you can work to pay off the debt.

Careful with credit. If you spend borrowed money recklessly you might be asking for trouble. The same applies if your credit card bill is bigger than you can pay off in one go and you aren't sure when you'll be able to pay it off. These are typically unsecured loans and, in most cases, the money has not created a saleable asset. Thus, in a crunch, the bank will haul you up for non-payment or, in the least, charge you interest at high rates.

Unless an asset is held as collateral for the loan by the bank, you will bear the risk of a fall in value - a recipe for disaster. Borrowing to buy shares expecting to book profits from a price rise in the short run is also a bad idea.

Below the bottomline
If the balance in your account goes below a specified limit, you will have to pay a penalty as well as other charges for various transactions

Penalty charges (per quarter)*

HDFC Bank: Rs 750

HSBC: Rs 750

ICICI Bank: Rs 750

Kotak Mahindra Bank: Rs 750-1,200

Standard Chartered Bank (StanChart): Rs 750-1,500

Punjab National Bank (PNB): Rs 40-150 

Cost of transactionsing

Call to customer service (non-IVR)HDFC Bank: Rs 50 per call
ICICI Bank: Rs 50 per call 

Cash transactions at branch
ICICI Bank: Rs 60 per transaction (1st 3 transactions/qtr free)
HSBC: Rs 50 per transaction (1st 2 transactions/qtr free) 

Dormant account
State Bank of India (SBI): Rs 30-50 per quarter
StanChart: Rs 1,000 per annum 

Inoperative account (a higher level of dormancy)
PNB : Rs 150 per quarter
HSBC: Rs 150 per quarter

Cheque charges (for leaves over and above the free ones per quarter)
ICICI Bank: Rs 5 per leaf
SBI: Rs 2 per leaf

*Charges are for regular saving accounts for urban customers
The list is not exhaustive. Check with your bank for full details

Interest in rates. Even while taking a home or a car loan, it still pays to look at a few points to ensure that you are getting the best deal. Both are available at fixed and floating rates. While a home loan is against an asset that will most likely appreciate, it is worth taking the risk with a floating rate. The car, however, will be a depreciating asset and the EMI will not be significantly higher if you go for a fixed rate. Besides, you will know exactly what your liabilities are.

Compare them all. While choosing the lender, apart from the interest rate, look at (a) processing or administrative fees, (b) legal fees payable to the bank, (c) technical or valuation charges payable to the bank, (d) stamp duty charges, and (e) pre-payment charges. A comparison should direct you to the right lender.

Simply put, a bank is primarily a custodian of your wealth. For a fee, it keeps your money safe. It also lends you money depending upon your credentials and assets. If you spend what does not belong to you in the first place, you are likely to have things spinning out of control. Else, you should be just fine.

Heavy load
Banking facilities can cost a lot. Take a peek

Closing an account
Kotak Mahindra Bank: Rs 600 (within 6 months)
HSBC: Rs 1,000 (within 6 months)
SBI: Rs 150 (within 1 year)

Urgent cheque issued over the counter
HSBC: Rs 50/leaf
ICICI Bank: Rs 100/5 leaves

Payment of credit card bill via cash at branch
ICICI Bank: Rs 100
HDFC Bank: Rs 50

Duplicate statement
StanChart: Rs 100
HDFC: Rs 100 (branch), Rs 50 (phone banking or ATM), Rs 30 (online, mobile banking, IVR)

Replacement of ATM/debit card
ICICI Bank: Rs 200/card
PNB: Rs 100/card

PIN regeneration
HDFC Bank: Rs 25
ICICI Bank: Rs 25 (free through Instapin at branch or IVR customer care)

Duplicate passbook
HDFC: Rs 100
ICICI Bank: Rs 100 (Rs 25/ page for updates)

Stop payment
ICICI Bank: Rs 50/cheque
HSBC: Rs 100/request

Unarranged overdraft
HDFC: Rs 100/transaction plus 18% interest per annum

Cheque returns
ICICI Bank: Rs 100-750
HDFC : Rs 50-350

The list is not exhaustive. Check your bank's website for details

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Bindisha Sarang, Outlook Money
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