BANK CHARGES

Evening Post, Volume CX, Issue 68, 17 September 1930, Page 10

BANK CHARGES

THE SMALL ACCOUNTS

(To tho Editor.)

Sir,—ln your issue of the 10th instant a correspondent signing himself "Small Customer" writes in condemnation of the practice o£ the banks in making a charge for keeping the accounts of their customers. Your correspondent is fair and moderate in tone, but I venture to suggest that his view of the matter is rather onesided, that he has not taken into consideration the case for the banks, and that he has also overlooked a number of mgnly valuable services which the banks perform quite gratuitously for their customers. These services, I suggest, are particularly valuable to the small customers, on whose behalf your correspondent writes. The practice of the banks in making an annual charge for keeping customers accounts does not seem unreasonable, me clerical labour involved in keeping the Huge body of banking accounts is enormous. The work has to be done by competent, accurate and rapid workers, employed at comparatively high rates of remuneration, and the bookkeeping involved is intricate and costly. It is true that the passbook is a record of the bank, but it is also true that it is a most valuable cash record for the customer, and that few would be willing to forego it at the trifling feej that is charged for keeping it. The banks j provide the pass-book and cheque-books free of charge, and the charge for keeping accounts hardly does more than cover tne cost of these items. The great bulk ot bank accounts are small, a considerable majority being accounts ot a few hundreds only. The clerical labour involved is relatively greater for the large body of small accounts, and, while it is true that the bank benefits by the custody of the credit balances o£ deposit accounts, it is also true that the amount of these is relatively small in the case of the large body ot small accounts. While, further, the bank I benefits by the use of the money, it is a I very great convenience for the customer to be able to slip his funds in and out of the bank without notice in accordance with his daily requirements, so that on this point the advantages are about, nrty-ntty. Your correspondent has also overlooked "the fact that the receipt of deposits subject to withdrawal by cheque is the essential and most important social service which a bank can render, and if the banks do not receive these deposits from customers as a body, they cannot extend essential banking facilities to customers as a body. Another point of importance that your correspondent overlooks is that, if the bank depositor wants interest on his money he can get it by the perfectly simple process of placing his funds on fixed doposit. Banks accept enormous funds in this way, to the great convenience of the community, and the position is that, if a person has available money for a few months, he can always get interest on it by depositing it for a fixed period, and throwing on the bank the onus of finding a remunerative outlet for such funds. In depressed times such as these this is not always a very easy task for the banks, nor does it necessarily bring them in very much profit, but they are always willing to accept such funds at a reasonable figure whatever the outlook. Your correspondent can hardly contend that the banks; should pay interest on the circulating funds represented by the ordinary deposit accounts withdrawable on demand. If they did this, they would have to keep idle very much larger cash reserves than they maintain at the present time, because they would be subjject to much more frequent and incalculable demands than is now the case, and the necessity for paying interest on current accounts, combined with the additional cost of extra cash reserves, would mean they would have to raise the rate of accommodation to borrowing clients. The public cannot have it both ways. . They cannot expect bank accommodation at relatively low rates if they were also to require the payment of interest on current deposits that can be withdrawn without notice. At the present time our banks charge on overdrafts interest only on the daily debit balance, so that a borrower from the bank pays, not on the agreed amount of his overdraft, as is the case in some countries, but only on the actual daily borrowing, and this is a considerable and important advantage. My view is that in return for the custody of deposit balances, as the system works at present, the banks give important services to the community at a rate which could not be kept at its present figure if they were to pay interest on current accounts.

Another reason why it is fair to make an annual charge for keeping accounts is to keep the number of such accounts down to a reasonable minimum. If there were no charge for keeping the accounts then lawyers, business houses, and others might easily get into the habit for their own convenience of multiplying the number of their bank accounts in order to facilitate their own bookkeeping. ' This, I understand, was the practice in New Zealand many years ago, and it grew to be a serious nuisance. If there were no restriction on the uumber of accounts opened, then the clerical labour attached to the banking business would be increased enormously, and the cost of banking facilities would have to be raised to the public. There is a final point that your correspondent has overlooked, and that is the valuable services which banks perform gratuitously for the public. There are few business men, especially in a small way, who have not experienced the benefit of frequently consulting with their banker on matters of business policy, and getting from them the best and most disinterested possible advice. In addition to that, the bank acts as a free custodian of valuables, and the services which it renders in collecting and paying items on behalf of its clients constitute a very great convenience, for which most business people would be willing, if necessary, to make considerable payment, but which, in fact, they get for nothing. Your correspondent suggests that there is a Post Office Savings Bank which makes no charge for maintaining its customers' accounts, and pays interest on all balances. So it does, but you cannot get an overdraft from the Post Office Savings Bank, neither will it collect items for you, or meet cheques drawn upon it. The convenience of a deposit account to business men is absolutely overwhelming, and if your correspondent is fair he will admit it is worth many times its cost.

It is true that m raising the annual charge for keeping the accounts the bank is passing some of the increased burden of taxation on to other shoulders. Everybody, however, does this where it is legally and economically possible to do it; and why should the banks be singled out for special opprobrium in this connection? The nature of the banking business, which is a social' service, is such that any burdens imposed on the banking system must ultimately lodge on the community making use of banking services, and probably this is the case with most forms of taxation. The remedy lies, not m_ abusing the banks, but in placing taxaation on a sound and well-considered basis, and avoiding hasty and patched-up expedients in collecting revenue.—l am, etc., ANOTHER SMALL CUSTOMER. lGtli September.