Latest Bankrate.com survey reveals industry trends --
and lets you find the banking that's best for you
By Michael D. Larson • Bankrate.com

When it comes to finding the best banking deal, it isn't who you know, but what you want.

That's the message from Bankrate.com's most recent semiannual Checking Account Pricing Study, released this week. The survey chronicles what the 10 largest institutions in each of the 35 largest U.S. markets offer consumers on their most fundamental banking product -- the checking account. Researchers gathered comprehensive rate, fee and policy information for 1,210 separate accounts.

Among the findings:

• Interest-bearing checking accounts continue to get more expensive, but fees -- and required balances to avoid them -- actually fell on non-interest bearing accounts.
• Internet institutions took the top seven slots on the combined 20 Best Buy rankings in the survey, underscoring the dramatic benefits consumers can get by banking online. All 20 Worst Buys belong to brick-and-mortar institutions, and some of the biggest names in banking feature prominently.
• More banks than ever -- 83 percent -- are hitting non-customers with ATM surcharges.

(For more facts and figures from the study's findings read our summary of the major highlights).

Beyond the numbers, however, lies an important message: Knowing what you want in a checking account is more important than anything else. Customers who want the highest yields, for instance, should go to an online-only bank. But those who want low fees and a branch down the street should consider a small local or regional institution.

Let the numbers help you
Regardless of their personal goal, though, shoppers can use the survey data to identify the best account for them while avoiding accounts that, quite frankly, stink.

So what's the most important thing to note from this study?

For starters, Internet accounts blow traditional accounts away from a pricing standpoint. Among 12 Internet banks surveyed, the average yield for interest checking accounts was 3.7 percent. At traditional brick-and-mortar banks, it was 1.05 percent.

Factor in other variables and the divergence gets even more striking. On average, interest-bearing accounts at Internet banks have lower minimums to open ($225 vs. $382), substantially lower balance requirements for avoiding fees ($583 vs. $2,394) and lower monthly service fees ($3.46 vs. $10.23).

While traditional banks tend to lavish perks and waive fees for their wealthy private clients only, Bankrate.com research shows online firms dole them out to the masses and privileged alike. Some 42 percent of interest-bearing Internet accounts have no monthly fee at all, while only 3 percent of brick-and-mortar accounts can say the same.

Three-fourths of Internet accounts also come with unlimited online access and bill paying at no extra charge. Only about one in 10 traditional checking accounts have the same deal.

Consumers who occasionally spend beyond their means won't get socked as much at an online bank either. With credit line overdraft protection, for instance, online consumers pay an average annual percentage rate of just 14 percent, compared with 17.24 percent at regular institutions. All but one of the Internet accounts charge no annual fee for that type of overdraft service, while 39 percent of all checking accounts have a fee that averages $8.86. Bank of America in Seattle charges a whopping $65.

People who need people
For all their benefits, however, online banks don't do much for shoppers who need face-to-face access to a human and nearby ATMs for deposits. The survey shows these consumers can find good deals too, but they'll need to shop both harder and smarter. And when it comes to traditional interest-bearing accounts, forget it. Today, they're a terrible deal when compared with non-interest bearing ones.

"In many cases, the best checking alternative for a consumer is the free or low fee non-interest account, instead of the interest-bearing account in which the associated fees more than devour any interest earned," the study says.

Indeed, while the average monthly fee on interest-bearing accounts has risen steadily from $9.59 in October 1998, the fee on non-interest accounts has actually fallen since then. It's now $5.99, down from $6.17 a year and a half ago. Some 12 percent of non-interest bearing accounts charge no fee at all too, compared to the measly 3 percent of interest-bearing ones that come fee-free.

Finally, the average balance necessary to avoid fees actually dipped for the first time in four surveys on non-interest bearing accounts, while it continued to climb on interest-bearing ones. Non-interest customers now need to keep just $466 in their accounts, 5 percent less than six months ago.

Fees vs. yields approach
So don't assume that interest-bearing accounts are automatically the first choice.

At the same time, wealthier customers may want to look beyond how bad a deal basic checking accounts are at some of the largest institutions. Many have endorsed the concept of "relationship banking" by taking stakes in or forging alliances with insurance companies, brokerage houses and other financial firms. Because they want consumers to establish "relationships" with these affiliates (in English: buy their stuff, too), they offer rate perks, fee discounts and other benefits for those who do so.

"Banks are moving toward more explicit precision pricing. If you maintain lush balances, you have sort of the prerogative to transact where and how you want," says David Tetenbaum, vice president at First Manhattan Consulting Group in New York.

"The more sophisticated management teams are becoming more focused on segments of their customer bases," he adds. "In the long term, it's much better for customers because each individual customer, in essence, is being given better choices and being offered more appropriate product sets relative to their specific need."

Financial experts warn consumers not to expect too much, however.

"The banks are trying to develop what they call relationship services. They want all of your business," says Eileen Dorsey, a certified financial planner with Money Consultants Inc. in St. Louis. "But I don't see any benefit, really."

That isn't the only thing about which consumer groups and banking professionals disagree. But for account hunters, it's better to stay out of the argument and focus on how to shop smart: Carefully evaluate your personal needs and financial habits. Take a look at the data. Then, decide which account is best.

-- Posted: March 28, 2000