Money matters: clearing up a few questions

The Weekend Herald has been flooded with readers' queries since the Banks series began last month. Here are answers to 10 of them.


Q. In these days of electronic banking, why does it still take a week to clear a cheque, yet a day to clear an Eftpos transaction?


A. When a cheque is deposited in a bank, it is immediately credited electronically to the person who receives it and deducted from the account of the person who paid it.

However, any decision by the payer's bank to dishonour the cheque (either because the payer does not have enough money in the account or because the signature is wrong or for some other reason) is made only when the payer's bank receives the cheque physically through the mail - usually two days later.

When the cheque is dishonoured, the deduction of money from the payer's account is reversed.

The payer's bank then sends the dishonoured cheque back to the payee's bank - again through the mail, which takes up to two days. Only then - up to five working days after the cheque was deposited - does the payee's bank deduct the money from the payee's account.

Eftpos transactions are faster because there is a direct electronic connection from the point of sale to the customer's bank, so the transaction cannot take place unless the customer's bank is willing to honour it. The money is deducted from the customer's account instantly and credited to the merchant's bank account overnight.

Q. Why can't I cash a bank cheque immediately?


A. It is a misconception that bank cheques are the same as cash, says Samantha Shaw of ANZ.

They are cheques and can be stopped, although only in certain limited circumstances such as theft. As such they must go through the same interbank processing system as any other cheque.

Some banks may allow bank cheques to be drawn on immediately, or sooner than other types of cheques, but they will still need to be deposited into an account.

WestpacTrust's Jane Anderson says it would take a sophisticated criminal to alter a bank cheque, because of built-in security features, but people should be careful from whom they accept such payment.

"Lawyers and accountants use them but I wouldn't sell a car on Saturday morning and take a bank cheque."

Q. How do the banks justify charging a penalty if I repay a bank loan or mortgage early?


A. When a bank lends you $100 for one year, it "hedges" its books by borrowing $100 in the wholesale market. It does this by selling an investor a piece of paper, or "bill," on which the bank guarantees to pay the investor $100 on the day you are due to repay your loan.

The price of that bill today depends on market interest rates. If the market rate is 10 per cent, then the investor will pay only $90.91 today to get $100 ($90.91 plus 10 per cent) in a year's time.

If the market rate halves instantly to 5 per cent, you may want to repay your high-interest loan and refinance at lower rates, or just pay the loan off faster.

But the investor who bought the bank's bill would now demand $95.24 to sell the bill back to the bank, because that is the price that would give a return of 5 per cent when $100 is repaid in a year's time. The bank would have to pay $4.33 more than it earned from selling the bill. It fixes penalties for early repayment of loans to cover the risk of that loss.

Q. Why do banks always seem to have fewer counter staff when there are most customers in the branches - at lunchtime and just before closing?


A. Banks deny they have fewer staff on counters at busy times, contrary to public perceptions. They say they try to stagger meal rosters over several hours, to ensure there are enough staff to meet customer demand.

The National Bank's Cynthia Brophy says her bank has a policy of keeping all teller booths full when there is a queue.

"We have been measuring our service levels and have made significant improvements over the past year."

Q. How do banks justify charging me for giving my money to them? Don't they want my custom?


A. Jane Anderson of WestpacTrust says: "We want your custom, we want your business, but it's the cost of the service we provide. It is a service to you - do you want to keep it [cash] under the bed?"

Q. How do banks justify charging me an application fee to borrow money? Isn't that like paying them to become their customer?


A. Cynthia Brophy (National) says fees these days are "unbundled" to keep the cost of assessing and processing a credit application - a time-consuming exercise - separate from interest charges, which are based on the cost borne by the bank to fund the loan.

Until about 10 years ago, fees were lumped in with the cost of the loan, but banks charged much higher interest rates then.

Q. Why can't I make deposits in some ATMs?


A. Samantha Shaw (ANZ) says her bank has no deposit facilities in ATMs because the cost is not justified in light of research showing that most customers are uncomfortable about putting cash in a machine.

Barbara Chapman says most ASB branches have ATMs with deposit facilities but none of its offsite machines accepts cash, because of customer concerns about security.

All National Bank ATMs take deposits. The BNZ's newer ATMs take deposits, and the bank is updating its network to increase that capability.

Q. Why do banks insist that depositors identify themselves? Am I legally bound to sign the deposit form and give my correct name?


A. Banks do not generally ask for identification, but people are asked to sign deposit slips in case, for example, the wrong account number is filled in and the bank needs to trace the source of funds to ensure they end up in the right place.

Q. When I make two transactions at an ATM, eg, deposit a cheque and then withdraw cash, am I charged twice?


A. Generally, yes, because they are two distinct transactions, but there are exceptions. For example, the ASB does not charge customers for making deposits into a savings account, or for transferring funds from a Moneymaker savings account to any account with the same unique number.

Neither does the ASB charge an exempt customer, such as a child, a superannuitant or someone deemed to have a significant financial relationship with the bank.

Q. Why do people with poor credit ratings perhaps based on youthful transgressions sometimes have difficulty opening even savings accounts for years afterwards?


A. The banks say it depends on the circumstances of each case, and even savings accounts can be overdrawn, through ATMs or direct debits.

Jane Anderson (WestpacTrust) says her bank would be likely to open a transaction account for a person with a past blemish, but there would be a long wait for a cheque book.

The ASB is advised by Baynet that poor credit ratings drop off that company's listings after five years, and court judgments made against debtors do not count against them after seven years, "so a transgression is not there for life."

The banks - a Herald series

Tell us your story:

Contact: Mathew Dearnaley or Simon Collins

Participate in our online forum.