What your banking could be costing you.

Let’s cut to the chase. The cost of banking can seriously add up. In fact, Finspo research conducted in early 2020 found the average amount paid in fees and interest (after deducting interest earned) by a sample of Australians to their banking providers was $9,500!

Keep reading and you’ll see:

• Where the cost is coming from
• Why it’s worth caring about
• How you can calculate the cost of your banking

Banking costs are not just fees. But it’s not your home loan repayment either…

So what exactly are banking costs?

Simply put, Finspo defines the cost of your banking as the sum of the interest you pay plus the fees you pay (less any interest you receive).

Seems simple enough right? Well it’s actually a little tricky. And here’s why.

First, it’s not just the fees. Sure fees are part of banking costs, and they certainly add up. In fact, Australian households paid $3.9bn in bank fees in 2019¹. That’s an average of around $425 in bank fees per household. But $425 doesn’t sound like much compared to $9,500, so where’s the rest come from?

This takes us to the second point. Interest. When you borrow money, you pay interest. When you lend money (like deposit money in a savings account), you earn interest. Most of the time when we talk about a home loan, we talk about interest rates applicable to the loan (the % per annum) or the amount we repay on our loan (the repayment). Neither of these tells you the actual amount of interest on your loan. The interest charged is the critical number.

And if you have a home loan, that number can be big. Like reeeally big.

So what’s the difference between repayments and interest? For most loans, the repayment you make is “principal and interest”, that is, the repayment consists of two parts, a repayment of the loan balance (principal) and the payment of the interest cost.

In the first 5 years of a $400,000 principal and interest loan with an interest rate of 3.28% p.a²., assuming for simplicity that the interest rate remains constant and repayments are made monthly, you’ll make total repayments of $104,845. Of that $42,583, will be paying down your loan (principal) while the remaining (and larger proportion) of $62,262 will be interest costs. (Why did we look at the first 5 years? Because that’s roughly the average life of home loans in Australia.)

The same basic rule applies for credit cards. Your repayment is a mix of interest and principal (although often the minimum repayment amounts will result in you paying lots of interest and you won’t pay very much off your balance).

So how did we get to $9,500? Well, we ran the numbers. We crunched over 153,000 transactions from a sample of Australians to see just how much people were paying for their banking, and these were the results:

So why is it worth caring about?

Because banking can cost a lot.

If you have a home loan, chances are interest costs are the single biggest expense in your household. By a big margin too.

Here’s a look at the top average weekly expenses for an Australian household with a mortgage³.

Think about the last time you worried about how much petrol was costing you. Or your power bill, or mobile phone plan or overseas holiday (although maybe now isn’t the right time to be talking about overseas flights, but it’s nice to dream).

Most households try pretty hard to save across a lot of expenses. But often the big one, banking costs and especially interest costs, just sits there.

That’s why we care about the cost of home loans at Finspo. Because the money you save on your home loan can make a big difference.

Simply get started online, then book a time with a friendly Finspo expert. They’ll help you understand your options to save on your home loan.

¹ Source: RBA Bank Fees in Australia – 18 June 2020.

² Source: RBA Statistical Tables F06, Owner Occupied Home Loans for May 2020

³ Source: ABS Household Expenditure Survey, Australia 2015–16

Things you need to know: Information is current as at July 28th 2020. This information is general only and is not intended to include any recommendation or suggestion or constitute any financial product advice or credit assistance about any of the products referred to in this document. Please consider whether this information is right for you before making any decisions and seek professional independent tax or financial advice. Conditions and fees may apply.