Customers should be aware of 'Know your Charges'

Ashwin was going through the bank statement of his daughter Malavika recently. He found that the bank had recovered charges towards failed Electronic Clearance Service (ECS) transactions for the past few months.

His daughter, a young techie had signed up for an SIP in a mutual fund when she was working for an MNC and had taken a sabbatical a few months back. As the ECS transactions couldn’t go through for insufficient funds, the bank had recovered charges that Malavika was blissfully unaware of!

The response of Malavika, so typical of many youngsters today, is due to the ignorance and lack of knowledge of the many charges that the banks levy for the services they render. It would serve you better if you were aware of KYC, (Know your Charges) that banks levy.

 Failed ECS transactions: Banks levy charges for failed ECS/National Automated Clearing House (NACH) transactions for want of sufficient balance.

Account-holders can register for ECS/NACH for many reasons like payments for utility bills, SIP, loan installments, insurance premium, etc. While some banks charge a flat amount for all failed transactions, others may charge more for every successive rejections. For example, if your bank charges Rs 350 for the first failure, it may charge Rs 750 for subsequent rejections in that quarter.

 Dishonoured cheques: You may issue some cheques to a third party and may also receive cheques issued in your favour. In case of dishonour of cheques issued by you and returned by your bank for want of funds, the charges are higher.

 Cash transactions: Banks also charge you for cash deposits and withdrawals beyond the stipulated number of free transactions.

For example, your bank may give you five free cash transactions in a month and may charge you Rs 100 as penalty from the sixth transaction onwards. Other than the number cap, your bank may also put a cap on the value or amount of cash transaction done at non-home branches.

 ATM/debit card transactions: There will be charges for ATM transactions as well. These free transactions vary from home to non-home bank ATMs. As per RBI guidelines, you can have five free transactions at home bank ATMs and three free transactions at non-home bank ATMs. Beyond this, the bank will levy penalty for both financial and non-financial transactions.

 Average balance requirements: Banks normally stipulate either a quarterly or monthly balance requirements for customers.

However, there may be zero balance accounts like Jan Dhan accounts too. More and more banks are moving towards the Average Monthly Balance system.

If your bank insists that you have to maintain an average monthly balance of Rs 10,000 in your account, you can either keep a minimum balance of Rs 10,000 every day during the month or keep Rs 3 lakh for a day in the month. (Rs 3 lakh divided by 30 days will get the average of Rs 10,000).

The banks calculate this by adding the balances at the end of every day and dividing it by the number of days in the period. (Called as daily product in banking jargon). Banks levy a penalty if the balance falls below the stipulated average balance. The confusion on this is because many of us are not aware of how the average balance is calculated.

 Debit card charges: These charges are levied every year and vary from a minimum of Rs 100 to Rs 500. The banks also charge when they issue a duplicate card when a card is lost or damaged.

 Duplicate statements: The banks charge you when you want a duplicate statement of account. These charges vary from branch to non-branch options like Net Banking, Phone Banking or ATM.

 Miscellaneous charges: There are also charges like SMS charges, balance certificate charges, photo attestation charges, address confirmation charges, stop payment charges, standing instruction charges, and so on.

There are no free meals in life, and so the next time you do banking, beware of the charges that you’ll have to pay!

(The writer is a former banker, who currently teaches at Manipal Academy of Banking)