Canadians paying billions of dollars in ‘excess’ bank fees: report

As the federal government pushes to reduce bank fees, a report from consultancy North Economics figures Canadians are overpaying by billions of dollars a year.

The report by the Alberta-based firm compared fees at the Canadian Big Five banks — RBC, TD, BMO, CIBC and Scotiabank — with what consumers face in the U.K. and Australia.

It shows that Canadians pay much more per month for bank accounts, as well as for fees for non-sufficient funds, overdraft charges, and accessing ATMs at competitor banks.

To get a sense of just how much more Canadians pay, North Economics managing director Alain de Bossart looked at how Canadian and British non-interest retail bank profits compare with their deposits. The measure excludes interest-based profits from mortgages and other loans.

Using the retail banking profits to deposits ratio for 2022, he found that Canada’s five biggest banks had $7.73 billion in “excess” income. The number works out to about $250 per Canadian.

“Canadian banks have done a very good job of extracting as many fees out of people as possible,” said de Bossart.

He said he’s been wanting to delve into the issue since moving to Canada from the U.K. about seven years ago.

“The first thing that struck me was that you pretty much have to pay a monthly fee, for just allowing a bank to hold your day-to-day deposits,” said de Bossart.

“In the U.K., you can hold multiple bank accounts with multiple banks, and expect to pay no monthly charges at all for a bank account that allows you to do everything you would reasonably expect to do in a month.”

The Canadian Bankers Association said in a statement that Canada’s banks provide the tools Canadians and small businesses need to manage their finances.

“Our country’s competitive banking system provides good value, ready access and wide choice for consumers and businesses,” said spokeswoman Maggie Cheung. “The banking sector understands the importance of financial well-being to all Canadians, and that many Canadians are feeling additional pressure on their budgets.”

The report highlights that along with major banks in the U.K. and Australia offering free accounts to all consumers, they also charge either nothing or only a few dollars when a customer is hit with non-sufficient funds. Canadian banks charge between $45 and $50 each time.

Finance Minister Chrystia Freeland has been pushing to improve low-cost banking options and lowering non-sufficient fund fees but has yet to do so, which de Bossart said prompted him to look into the issue.

The report also notes that Canadian banks generally charge $5 for overdraft protection, either on a monthly or per instance basis, whereas U.K. banks charge nothing (though banks in the U.K. do charge higher interest on the overdrafted amount).

Canadian also often face multiple fees when using the ATM of a bank where they don’t have an account, which can run anywhere from $1 to $9, while consumers in the both Australia and the U.K. aren’t charged anything, he said.

Cheung said the banking sector “understands the importance of financial well-being to all Canadians, and that many Canadians are feeling additional pressure on their budgets.”

She noted that according to recent data from the Bank of Canada, roughly 57% of Canadians either do not pay for a bank account or had their monthly fee waived or refunded.

No-cost accounts are available to groups like young people, students and seniors, but the North Economics report notes there is no free option offered to all Canadians.

It also points out that while customers can avoid paying fees if they keep a high enough balance in their account, that amount can run anywhere from $3,000 to $6,000. That means the lump sum can’t be generating more via a different account with better interest rates.

De Bossart said the lower fees in the U.K. and Australia are in part a result of regulators having a stronger mandate to encourage competition, including through things like making it easier to switch accounts.

“The regulation mandate has really included a competition mandate, so the idea of promoting and enhancing competitive behaviours in the market, whereas in Canada, that’s really not something that is being considered.”