Starting Friday, many customers of Bank of Montreal will see fees rise on their accounts and debit transactions, as the country’s third-biggest financial institution becomes the latest big Canadian bank to lift costs on account holders.
Bank of Montreal plans to implement account changes May 1 that include increasing monthly fees on “Everyday” plans by a dollar, while debit purchases will be increased to $1.25 from $1 per transaction. BMO is keeping some plans free or at their current rate, but will hike rates on others, such as “premium” accounts for kids, recent graduates and members of the Canadian armed forces. A fuller breakdown can be found here.
Ralph Marranca, a BMO spokesperson, told Global News earlier this month the bank has been inviting customers to “sit down with us so that we can review their needs and suggest a number of strategies and plans that can help them lower and avoid fees altogether.”
BMO joins most of the country’s other big banks who’ve increased fees on a range of accounts and transaction types this spring, moves that will help pad the hundreds of millions in annual revenue they generate from such charges, but lifting day-to-day banking costs for customers in the process.
TD Bank has already tweaked rates and terms as of April 1, a change that followed account alterations and fee increases at Scotiabank and CIBC. Together with RBC and BMO, TD, CIBC and Scotiabank comprise the country’s “Big Five” banks.
“Pretty much anyone who’s a banking customer is going to be impacted in some way,” said Penelope Graham, editor at ratesupermarket.ca, a site that tracks borrowing rates and fees charged by financial institutions.
RBC last to move
Royal Bank of Canada, the country’s largest bank with an estimated 18 million accounts, is the lone holdout. But that will soon change.
On June 1, RBC will introduce new or higher fees on a wide range of accounts and transactions, such as debit purchases – even mortgage payments – increases that will lift costs on scores of account holders.
‘We review our products and services and sometimes adjust the pricing for some of them to reflect the cost of doing business.’
The country’s largest bank will also move up its age eligibility for rebates provided to seniors on account fees from the current 60 to 65.
RBC spokesperson Andrew Block told Global News, “We understand that any change in pricing or fees is a sensitive topic for clients and we work hard to keep costs down. On an annual basis, we review our products and services and sometimes adjust the pricing for some of them to reflect the cost of doing business.”
“I am surprised there has been very little chatter about it,” Mary MacPherson, a retiree who emailed Global News, said.
Under the new fee structure, MacPherson says her monthly rebate will be cut by more than half, to $5, and if she pays her Visa or line of credit from her savings account, she’ll be billed a new charge, according to her. “This galls me!” she said in an email.
MacPherson has made an appointment at her local branch next week and hopes the manager can get some or all of the fees waived.
Lack of competition
The net effect of the rate hikes on consumers (and affected small business accounts) will be negative, with day-to-day banking costs becoming suddenly more expensive.
“These rates are really like interest rates – they’re a cost of money,” Don Mercer, vice president, federal affairs at the Consumers Council of Canada, said.
Mercer also questions the relatively lockstep nature of the hikes at each bank. “You can draw the conclusion that there’s a lack of competition in the market when they raise rates this way,” he said.
Experts say the moves aren’t routine – banks don’t usually push through yearly increases like cable or phone companies typically do.
“This isn’t a very common event,” a stock analyst source who publishes research on Canadian banks said. “The banks don’t normally raise rates on an annual basis, there’s no set timeframe that they’d do something of this nature.”
Fees are nevertheless lucrative: RBC generated just under $1.5 billion in account service charges in 2014, an amount approaching 5 per cent of the bank’s total revenues. Many bank fees are considered “high margin” or highly profitable, experts say.
The fee changes come at a time when experts say banks face “headwinds” or pressure on high-growth areas of their businesses. Experts say lending for things like residential real estate and car financing is poised to slow as Canadian households curb borrowing and confront record amounts of personal debt.
“They’re certainly not getting the same level of profit growth they were getting from borrowers as they were a few years ago,” Graham said. “Mortgage spreads are incredibly tight.”
Banks have dropped their mortgage rates as well as what they charge on other loan products to record- or near-record lows, moves that are cutting into their profit margins.
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