More on European bank charges

By Felix Salmon
September 23, 2009
SP, I've now found the study (149 pages, 1.5MB) examining bank fees across Europe. It makes for fascinating reading.

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Thanks to SP, I’ve now found the study (149 pages, 1.5MB) examining bank fees across Europe. It makes for fascinating reading.

Here’s one key graph:


On the y-axis is the annual cost of a checking account for the average individual; on the x-axis is the degree to which banking products are transparent and simple. (Simplicity and transparency are very highly correlated.) Basically, once transparency and simplicity reach a certain not-particularly-high point, the cost of checking is capped at a reasonable level. But where there is opacity, the sky’s the limit when it comes to how much banks can charge.

Incidentally, “checking” is now very much a misnomer in pretty much all European countries. In Belgium and Spain, the average household writes less than 3 checks per year, and fewer than one in three households writes any checks at all. At the other end of the spectrum, in Portugal the average household writes one check a month: anything more than that is considered “high usage”. I don’t know what the equivalent figures are for the US, but I’m sure that the number of checks written overall is at least a full order of magnitude higher than it is in the EU.

I’m also intrigued by these charts:


The main thing I see here is lots of red and purple: basic annual and account charges. What that says to me is that banks in Europe don’t hide their charges in the form of overdraft fees and other things people don’t expect to incur: that in general European bank charges are much more transparent than those in the US. That’s a good thing, and it stops the poor from cross-subsidizing the rich, as happens in America.


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It is not “poor cross-subsidizing the rich” – it should be the “stupid (or the too busy to check their account balances) cross-subsidizing the smart (who know whats in their bank account)”

Posted by Guess Who | Report as abusive

The poor don’t subsidize anyone. The working and middle classes subsidize both the poor and the rich.

Posted by Mike | Report as abusive

“But where there is opacity, the sky’s the limit when it comes to how much banks can charge”

Of the 3 data points below a 4, 2 of them are well below the regression line, and look to be about average to the ones higher in simplicity. Is there an r^2 value for that graph? (I am unable to see the .pdf on my work station).

Hi Felix

I’m afraid that ‘account charges’ does include unauthorised overdraft fees (though not fees for bounced cheques, which are in the green ‘cheque fees’ category). p128 of the report has the definitions.

Not too surprising, looking at the UK example – where we have so-called “free banking”. Which means no annual or transaction charges, and the difference made up on overdraft fees and interest spread.

It would be interesting to see a figure for how much money the banks make on foregone interest – UK checking accounts usually earn interest at 0.1%, and this of course is where banks make most profit. Nothing wrong with that, of course, but it definitely weakens their argument that overdraft fees are a necessary part of the business model. Perhaps this is elsewhere in the report – I didn’t read the whole thing.

I’m in the US, and I write about 3-5 checks per month.

Besides paying bills, they are also very useful for person-to-person transactions (i.e., at garage sales, paying friends back, etc.), since I don’t really carry any cash.

Posted by Bob Montgomery | Report as abusive

You use checks to pay friends?

Every UK bank has a website where you can send an online payment instantly at no cost to your friend’s account.

Same for bills – that’s if you don’t ok the direct debit (which takes 10 seconds to do).

US personal banking seems so quaint. I’ve seen some poor websites too – separate log ons for checking and then credit cards with the same firm.

I don’t know anybody under 60 who writes on average even 1 check a month.

Posted by vk9141 | Report as abusive

In Europe, from my experience in Portugal, checks are not used as their are more efficient methods of payment and transfer. Generally all transactions can be done via an ATM or Internet banking. We have been able to top up a cell phone or pay bills at an ATM for close to 10years. Not sure why anyone would want to send a paper check to someone via post. Internet transfers can be done for free and are quick and easy (and international). As for banking costs, the real cost comes is lost interest – the interest paid on an account vs the “real” interest rate.

Alex, is there a correlation between high banking charges and sport by any chance ?

it looks like Spain is a leader not only in

and banking charges opacity and charges themselves.

I live in Spain, but not Spaniard, and i am so upset

Posted by chris | Report as abusive