Why big banks charge big fees (and where the future is headed) 

January 4, 2021

Chances are the bank you opened your first account with is the same as your parents’ and likely even your grandparents’ too. That’s because roughly 45 percent of Canadian millennials choose their banks based on what their family uses.

Gen X-ers and baby boomers hold onto their primary financial institutions for up to 40 years. A lifetime. People stick to what they know.

What if we told you that Canadians spend an average of $216 per year on banking fees — just to keep their money someplace safe? Would you be motivated to switch banks or continue dishing out the dollars because it’s “all the same, anyway”?

The Big Five Banks in Canada (RBC, BMO, TD, CIBC, and Scotiabank) have been in business for over 150 years. While their products don’t differ much from each other, they’ve established a loyal customer base. 

Now, imagine if fees were no longer part of the picture and instead, you could save all that money for the things you love. Digital banking is the way to keep your money safe, without the added costs or the complication of opening a new account and syncing it with your existing institutions.

Digital banks are gaining popularity as more Canadians seek innovation in their financial tools and realize there are better options for them to grow and manage their money freely.

Why do banks even charge fees in the first place?

Banks are in the business of making money. 

You pay banks to keep your money safe, and they then use that money to lend it out to others for a price. 

When banks are profitable, they stabilize the economy; money is reinvested back into businesses, taxes, and shareholders, allowing our communities to prosper.

However, where there’s an opportunity to charge you more, they will. According to the Canadian Banking Association, service charges and personal banking fees make up five percent of banks’ revenue. By that standard, TD raked in $2 billion in bank fees in 2019 alone.

What’s more, Canada’s Big Five banks operate through an extensive network of physical branches. As of 2018, the Canadian Bankers Association reported 5,890 active branches across the country. Banks invest millions of dollars ($2–4 million on average) in opening a new branch, and the costs to maintain infrastructure ranges from $200,000 to $400,000 per year. To recoup these steep operating expenses and earn a profit, banks consistently raise their fees.

What are all the different types of fees?

There’s a fee for just about everything you do with your money. Here’s a summary of what to look out for:

  • Monthly account fees – using certain types of accounts, typically chequing.
  • NSF (non-sufficient funds) fees – not having enough money in your account and occurs when you don’t have overdraft protection or exceed your overdraft protection limit.
  • Foreign transaction fees – every time a transaction is processed with foreign currency or passes through a bank outside your country.
  • E-transfers – often charged every time you send money to someone else.
  • Overdraft – when you don’t have enough money in your account to cover a purchase, but your bank will loan you the funds.
  • ATM fees – charged when you don’t use an ATM that is associated with your bank.
  • Minimum balances – requiring certain balance in your account at all times to avoid additional fees.
  • Paper statements fees – most customers choose to go paperless, so it’s extra to request a physical statement.
  • Lost card fees – charged when you need to replace a card

Skip the fees with digital banks

The good news is you don’t need to pay fees to do simple (or big) things with your money. The rise of alternative options, known as challenger banks or digital banks, is paving a new generation of mobile, fee-less financial products that rival those of the big banks.

Digital banks offer seamless and integrated financial services with the click of a button. It's about more than just managing your money online; it’s a new, simplified way of banking.

Without the exuberant costs of physical branches, digital banks can offer financial products free from most fees and limitations and often earn their customers higher interest rates on their savings than average.

How Neo is different from the Big Five Banks

Neo is a fintech company that reimagines Canadian banking. From day one, we’ve made it our mission to simplify finances for all Canadians, so you can develop a positive relationship with your money. Unnecessary fees, or anything else for that matter, shouldn’t stop you from achieving your financial goals, which is why we’ve removed these barriers with a digital-first approach.

It only takes a few minutes to open Neo Savings, a high-interest savings account with a top market interest rate. Your money is safe with us, as Neo Savings is provided by Concentra, a CDIC member institution, and is eligible for CDIC deposit protection.

Moving money, paying bills, withdrawing cash, and making deposits is free and accessible at all hours, anywhere you are in the world. Unlimited free transactions, no minimum balances or monthly fees are all part of the package.

Alongside big savings, we offer Canada’s most rewarding cashback credit card. The Neo Mastercard® provides you with instant cashback between 4-6% at thousands of Canadian businesses we’re partnered with and 0.5-1% everywhere else. 

Want even more rewards? Our rewards plans range from $4.99 to $9.99 per month and give you the flexibility to choose the kind of rewards you want.

Switch your rewards plan based on your monthly spending, cancel anytime, or go back to the free Essentials plan that still earns you more at our partners than others. Either way, you’re getting the most from your money with instant cashback.

We empower Canadians with personalized tools to earn them more from their everyday interactions, so achieving a more rewarding future is always within reach. 

It all adds up

Fees can eat up a good chunk of your change. Not to mention, they slow you down from reaching your financial goals. These barriers all end with the entry of digital banks, which offer no-fee-daily banking services that are both personalized and seamless.

Keep your money in safe hands, move it freely whenever you please, and keep tabs on how it’s doing with real-time insights. With Neo, you can manage everything from your phone without ever stepping foot into a branch and finally put your money towards things that matter. 

Learn more about Neo’s cashback credit card and high-interest savings account.