FINANCE SPECIAL............................... All you need to know about cap on free ATM transactions

 All you need to know about cap on free ATM transactions

The RBI's decision to cut the number of free transactions on other banks' ATMs will have widespread ramifications. Starting 1 November, if you conduct more than three transactions on other banks' ATMs in a month, you will be charged Rs 20 per transaction. The apex bank has also allowed banks to charge customers if they use their own bank ATMs more than five times a month. This applies to transactions in six metros: Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad.

The silver lining in the new rules on ATM usage is that the charge structure has been harmonised. Before the RBI decided in 2009 to make five ATM transactions free, banks used to charge anything between Rs 15 and Rs 60 per transaction at another bank's ATM. This was later revised to Rs 20 per withdrawal and Rs 9 for non-financial transactions. Banks have been lobbying for the introduction of charges on ATM usage ever since the RBI allowed this.

Thankfully, the RBI has not permitted banks to have their way and retained the cap on charges for withdrawals.

While Rs 20 per transaction is not exactly usurious, it can add up to a sizeable amount every month if you are not careful about your cash flow. With careful planning, you can avoid paying the ATM charges beyond the free transactions. However, don't go overboard trying to avoid the ATM charge. For instance, keeping a lot of cash at home to save on ATM fees could prove counter-productive. In your effort to save Rs 20 in transaction fee, you may lose a few hundred rupees in interest.

Besides, it is possible that your bank does not levy charges for using ATMs frequently. For instance, preferred customers, who hold a large bank balance or have made investments through the bank, could be allowed more than three free transactions a month at other ATMs and an unlimited use of the bank's own teller machines. The change comes at a time when banks are adopting technology at a furious pace. Most banks now offer customers the facility of knowing their account balance or getting a mini statement through an SMS or phone banking. So, avoid using the ATM for nonfinancial transactions that can be done through other channels.
6 ways to avoid high ATM charges
Here's how you can avoid the charges that are likely to kick in from 1 November 2014.

Use cards wherever possible
Your first weapon against ATM charges is the plastic in your wallet. Use your debit and credit cards so that you don't need too much cash. Be alert when you do this. Some establishments charge 1-2% of the amount as transaction fee, which will defeat the purpose of using the cards. There is also the danger of overspending if you use plastic money for every purchase.
Plan your cash flow better
Don't wait till you are broke to withdraw money from the ATM. Give yourself a buffer of 2-3 days by indulging in advance planning. In this manner, you won't be forced to use another bank's ATM. While withdrawing cash, take out more than the amount you need immediately. Take into account the expenses during the coming 8-10 days and withdraw accordingly.


Prefer your own bank

If your bank's ATM is in the vicinity, avoid using another bank's machine. Even if you have to walk 50-100 feet, your first choice should be your own bank's ATM. Only if there is no ATM close to you should you use another bank's ATM. Some banks have apps that can help you locate their nearest ATM on the smartphone. Make a list of your bank's ATMs in the areas you frequently visit.
Keep emergency cash
Keep some cash at home in case you run out of money due to unforeseen expenses. However, don't keep too large an amount in cash. In your effort to save Rs 20 in ATM fees, you could be losing out more in interest on that amount. Besides, keeping cash at home is risky.
Start using dormant account 

The silver lining is that the ATM charges will help revive your dormant bank account. Most banks charge a small annual fee of Rs 80-100 for a no-frill debit card. One debit card will allow you 36 transactions on other banks' ATMs and 60 at your own bank in one year. That is much cheaper than the charge imposed by your current bank if you exceed the cap on transactions.
Use SMS, phone banking for non-financial transactions

The cap on ATM usage includes non-financial transactions, such as balance enquiry or a mini statement request. Instead of using the ATM for this, take the SMS route. Most banks offer SMS facility for checking account balance, mini statements with last five to 10 transactions, and the status of cheques issued by you. 

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