Latest Bankrate.com survey finds all
online accounts are not created equal
By Michael D. Larson • Bankrate.com

If you're looking to bank online, be careful. New Bankrate.com research shows that not all online accounts are created equal.

In fact, many brick-and-mortar banks with online banking offer exactly the same high-cost accounts in the virtual world that they sell in the real one.

These findings and more can be found in Bankrate.com's most recent Checking Account Pricing Study. The semiannual report on the state of the state of checking tallied 1,210 accounts in 35 markets across the country. As part of the review, researchers looked at accounts available online from the 10 institutions with the largest online customer count, as well as accounts at 12 pure-play Internet banks.

Consumers should be aware that accounts fall into three categories: those from Internet-only (or "virtual") banks; those from online banks that are owned by big brick-and-mortar institutions, but operate independently; and those available from brick-and-mortar (or "bricks and clicks") institutions directly.

Serious dough
The study can help smart shoppers save some serious dough because it highlights banking practices consumers may not think about.

Most people understand that Internet-only banks offer accounts that beat traditional brick-and-mortar accounts hands down. The companies can offer higher yields because they don't have to build and maintain branches in the real world.

Yet industry outsiders may not realize that accounts offered by independent online divisions of larger financial institutions are better than the online banking accounts offered by the parent companies directly. In other words, you better know where to click if you want the best deal.

"Citi f/I, an Internet bank, offers two non-interest accounts, each requiring a $1,000 balance to avoid monthly service fees of $3.00 or $5.00," the study says. "The same accounts offered by Citibank via citibank.com require as much as $10,000, depending upon location, to avoid a service fee topping out at $10 and $25 respectively."

When it comes to online accounts offered by traditional banks without independent, virtual divisions, consumers are really in for a shock -- the online accounts are exactly the same as what's available at a local branch. That means consumers who have flocked in droves to banks such as Wells Fargo and Bank of America for online accounts aren't getting any of the cost and yield benefits online banking customers have come to expect.

"In comparison to pure Internet banks, the (online) checking accounts of the bricks-and-clicks mirror the traditional retail branch pricing model, meaning higher minimum balance requirements, service fees and/or per-item charges," the study says.

Where you live can make a difference
The same pricing variations that those banks have from one geographic market to another in the real world carry over into the online realm as well. One of Bank of America's checking accounts has a $1 service fee in Portland, Ore., but a $7.50 fee in California, for example, and there's no way a California resident can game the system to get the cheaper fee via the Web.

It might seem nutty, but these discrepancies exist because banks are new to Internet banking, too, says David Tetenbaum, vice president at First Manhattan Consulting Group in New York. They want to offer electronic accounts. But they don't want their regular customers just moving over to high-yielding online accounts unless those customers give up something that costs the bank a lot in return, like teller visits.

"Internet banks in general, the notion there is higher rates for lower cost of service," Tetenbaum says. "But if they don't make sure those value propositions are set into balance and their rules of engagement are defined clearly, you just get migrations over for rate and status quo for the transactions."

Do your research and make your choice
So what's an account hunter to do?

Go with a pure-play Internet bank if you think high yields and low fees are enough to compensate for the need to deposit checks from grandma via snail mail. If you decide you want the benefit of access to local automated teller machines, consider an online account from a large bank.

But steer toward a bank that has an independently operating Internet division, if possible, because it will offer the best of the real and online worlds.

-- Posted: March 28, 2000