Dear Mr. Summers,
Since we regard you as a “partner” in our banking family, we at the Royal Bank appreciate your concerns. Rest assured, we look upon the administration of your money as a solemn duty.
You wrote to me that you felt we were “gouging customers with [expletive deleted] spiraling service fees.” Let’s look at the facts, Mr. Summers.
Suppose you have an extra $100 and you partner with us by opening an account.
After one year, we will pay you .05 per cent interest and you will have a $100.50 balance. We will have expenses such as political donations and green fees for our executives. Because of overhead, we have an annual service fee of $5.
Bottom line: at the end of 365 days, you will still have almost a $96 real balance and your money will be safe. It’s a win-win partnership.
A system of cheques and balances
If you don’t want to keep your money in our bank, you can withdraw it at any time by writing a cheque. If a clerk cashes it for you, the Royal Bank charges a reasonable teller’s fee of $2. If you use an ATM convenience card, our service fee is only 50 cents.
Your convenience card costs you $12.50 annually, but you can use it for many other transactions such as checking your account balance — and each time you use that card you gain air miles. Not many, but they mount up. Win-win again.
How can we afford to keep our service fees so low? We augment our fees with the money people entrust us with.
Suppose that Customer B writes a cheque for $50 but only has $49 in our bank. (In our Far East branches, such an action would be punishable by public whippings, but in Canada we are more lenient.) If someone is a good customer, we will “lend” him or her a dollar so that the aforementioned $50 cheque will clear.
Since we are in the business of managing money, we charge a nominal $20 overdraft fee (plus interest). The unpaid interest on the dollar is 18 percent. This means that we must wait a full four years to double our money.
During this time we have many expenses: bad debts, political donations, hiring people to foreclose on orphanages and so on.
If we are patient, we are eventually rewarded. One dollar at 18 percent over 100 years turns into $33 million. (We bankers call this the Rule of 72. Divide 18 into 72 and you come up with four. That means our money doubles every four years. How many four-year periods are there in a century? Twenty-five. Just double a dollar 25 times and you can arrive at the answer yourself. Good old compound interest.)
To heir is human, to bank is a ripoff
Happily, come rain or shine, your account will also continue to earn compound interest. Understandably, bank service fees will erode your account if you do nothing.
In the fifteenth year, if you (or your heirs) continue to neglect your account, we at the Royal will, as a courtesy, “absorb” your balance to avoid further charges to your estate. A good thing, for we have a solemn duty to look after money in the manner that Our Father in Heaven directs us to.
So, to recap: We will, with hard work, have turned your 100 dollars into $33 million. Your original $100 account will long ago have been closed because you abandoned it. You will be dead or senile.
Mr. Summers, I’m sure I need not remind you of the liability one faces when one’s partners are both dead and/or broke.
Worse, as the years roll by, we will be burdened with more and more dead and senile customer-partners with no money. Consequently, your partners here at the Royal Bank feel justified in maintaining our present service fees.
With warmest holiday wishes,
Gordon M. Nixon
Chairman & CEO, Royal Bank
Royal Bank of Canada will pay a $35 million penalty for engaging in illegal futures trading with itself over a three-year period in one of the biggest such cases brought by regulators. WSJ