Online banking still a better deal, but not by much
By Laura Bruce • Bankrate.com

Internet banks have always touted their interest-paying accounts, higher yields and lower fees, but the differences between Web-based financial institutions and their brick-and-mortar counterparts are diminishing.

Once again, 26 Internet institutions were surveyed for this edition of the Checking Account Pricing Study. E*Trade Bank, RBC Centura Bank and Flagstar Bank appear in both sections of the study due to their significant size within one or more metro areas surveyed.

Interest-bearing accounts are a strong feature of Internet banks, and 32 of the 38 accounts surveyed are in that category.

Minimum to open
Opening an interest-paying account at an Internet bank has gotten a bit cheaper since our last survey. The average minimum required is $784.69. That's 3 percent less than in October, but 22 percent higher than a year ago. The average exceeds, but is still comparable to, the $718.40 at traditional banks.

The average minimum to open a non-interest account at an Internet facility is $91.67, slightly higher than the $74.98 required at brick-and-mortar banks.

Minimum to avoid fees
If you want to avoid paying fees on an interest account, you'll have to keep a minimum balance of $1,239.10 in your account. That's 23 percent higher than last fall and a whopping 49 percent more than was required a year ago. Still, it's little more than half of the $2,330.60 required at traditional banks.

The average minimum required for non-interest accounts remained at $225, below the average $352.65 required by traditional banks.

Yields
The lower rate environment has had an effect on Internet banks.

The average yield on interest checking has dropped to 1.84 percent from 2.77 percent six months ago.

Nevertheless, that's still three times the average paid by traditional banks.

Monthly service fees
Internet banks also have an advantage over traditional banks when it comes to monthly service fees -- but the gap is narrowing.

The average fee for interest checking is $7.36.

That's an 11 percent increase since last fall, and a 40 percent increase in the past year. The fee still compares favorably to those at traditional banks where the average is $10.67.

The average fee on a non-interest Internet checking account is $4.83, the same as six months ago. Traditional banks charge an average $6.11 for the same account.

No service fees
Internet banks traditionally offer a higher percentage of accounts that don't charge a service fee, but those accounts are disappearing rapidly.

Twenty-two percent of interest accounts at Internet banks don't charge a service fee, compared to 4 percent at traditional banks.

But, just one year ago, 41 percent of interest accounts at Internet banks didn't stick you with a monthly service fee.

Among non-interest accounts, 33 percent don't charge a service fee vs. 14 percent at traditional banks.

Free accounts
Internet banks still offer a higher percentage of free accounts than traditional banks. Twenty-four percent of all Internet checking accounts are free -- no monthly service charge or per item charges no matter how little is in your account. That's a 5 percent drop from six months ago, but still beats the 9 percent at traditional banks.

Bounced check charges
When it comes to bounced checks, Internet banks aren't much kinder than their brick counterparts. The average non-sufficient funds (NSF) fee is $24.45 at Internet banks. That's 1.5 percent less than six months ago, but 4 percent higher than a year ago.

Nearly all the checking accounts offer overdraft protection.

Per-Item fees
Only four Internet accounts charge a per-item fee. Three of the accounts allow 40 free transactions each month before the fee kicks in, so it should be pretty easy to avoid the fee. The other account allows 15 free transactions. In each case, the fee is 50 cents per transaction.

ATM
All 26 Internet institutions surveyed offer ATM cards, and 54 percent own ATMs, the same percentage as one year ago. The biggest difference between Internet and traditional banks when it comes to ATMs is that 85 percent of Internet banks don't charge their customers for using another bank's ATMs, while 88 percent of traditional banks do charge customers for using non-bank ATMs.

And most Internet banks, 62 percent, reimburse their customers for surcharges assessed when using another bank's ATM. This number has stayed fairly consistent for at least the past year.

Reimbursement varies by institution, but typically involves a dollar limit or a certain number of transactions or both that will be reimbursed each month. The most common arrangement is up to four transactions of $1.50 per month, or up to $6 total per month.

On the other hand, both Internet banks and traditional banks surcharge non-customers for using the bank's ATMs. The average at Internet banks is $1.37, same as the last study. Traditional banks charge $1.47.

All 26 Internet banks allow customers to make fee-free point-of-sale purchases. None of the Internet banks charges an annual fee for an ATM card.

Debit cards
Debit cards are available at 85 percent of Internet banks, down a bit from 88 percent last October. Ninety-five percent of Internet banks have the same pricing for debit and ATM cards, down from 96 percent in October.

-- Posted: March 28, 2002