Internet banks: where the deals are
By Laura Bruce • Bankrate.com

Mention Internet banks and many people just think of online access and online bill pay.

But Internet banks offer more than that. When it comes to interest-paying accounts, Internet banks win first prize. The average yield is triple what their brick-and-mortar counterparts offer. But you'll have to keep a hefty minimum balance if you want to avoid fees that would gobble up that interest.

Bankrate.com's Fall 2002 Checking Study looked at 51 accounts at 27 Internet banks. Of the 51 accounts, 32 are interest bearing.

Four of the Internet banks -- E*Trade Bank, RBC Centura Bank, Acacia Bank and Flagstar Bank -- also appear in the traditional bank portion of our study because they've crossed over into the land of brick and mortar in a significant way in one or more of the metro areas surveyed.

Minimum to open
If you want to earn interest on your checking account you'll have to pony up $952.56. That's a 21 percent hike from our Spring 2002 report and nearly 71 percent higher than two years ago.

That average minimum is 31 percent more than the $727.62 average required by traditional banks.

The average minimum to open a noninterest account at an Internet bank is $104.17, up 14 percent from March. Compare that to the $74.28 average at traditional banks.

Minimum to avoid fees
Earning interest on the money in your checking account is great, unless fees wipe it out.

You don't want that to happen, so be prepared to plunk a few hundred dollars more into that account, and keep it there.

The minimum balance required to avoid fees on interest accounts rose to $1307.69.

That's a 5-percent hike since March. And that minimum has skyrocketed 138 percent in the past two years. Still, it could be worse.

If you want to avoid fees on an interest-bearing account at a traditional bank, you'll face an average minimum of $2,593.14.

The average minimum required to avoid fees on noninterest Internet accounts dropped 15 percent to $191.67, down from $225 for the two previous studies. This also compares favorably with the $357.43 average required at traditional banks.

Yields
Internet banks continue to pay yields that are nearly triple those seen at traditional banks.

In keeping with the lower interest rate environment, the average yield has dropped from 1.84 percent to 1.51 percent.

Still, that beats the 0.57 percent average at traditional banks.

Monthly service fees
Lower service fees are another advantage with Internet accounts.

That said, the gap between them and the fees charged by traditional banks is narrowing.

The average monthly service fee on a noninterest Internet account dropped 20 percent to $3.88. But the average on interest accounts jumped 12 percent to $8.24.

That's an all-time high, almost double what was being charged two years ago.

The fees still compare favorably to those charged by traditional banks, where the average for interest accounts is $10.59 and $6.18 for noninterest accounts.

Accounts without service fees
Ten percent of Internet interest accounts don't charge a service fee. That's down a considerable 22 percent from March but still double the 5 percent at traditional banks.

When it comes to noninterest accounts, 50 percent of accounts at Internet banks don't charge a service fee, the highest since March 2001 when that figure was at 60 percent. Compare that to only 17 percent at traditional banks.

Free accounts
The number of free accounts may be growing at traditional banks, but it's shrinking at Internet banks. Free accounts -- no monthly service charge or per item charges regardless of balance -- make up 20 percent of all checking accounts at Internet banks. That percentage has consistently declined since March 2001 when it stood at 46 percent. Nevertheless, it's still double the 10 percent of accounts at traditional banks that meet the criteria for being "free."

Bounced-check charges
In keeping with other financial institutions, the cost of bouncing a check has risen at Internet banks too.

The average non-sufficient funds (NSF) fee is $24.96 at Internet banks. That's an all-time high, up 2 percent since March.

The average bounced check charge at a traditional bank is $25.58.

Overdraft protection
Overdraft protection is just what the doctor ordered for those of you who find balancing a checkbook challenging. Overdraft protection is readily available at Internet institutions. Ninety-two percent of the institutions surveyed offer it, up from 89 percent in the four previous studies.

Overdraft protection is a favorite at traditional banks too, where it's offered on 96 percent of accounts.

Per-item fees
Per-item fees are assessed on some accounts for anything from writing more than a stipulated number of checks to making more than an allotted number of withdrawals.

Only four of the Internet accounts surveyed charge a per-item fee. Two of the accounts permit 40 free transactions per month before the per-item fee kicks in, and a third allows 25 free transactions. Those freebies should cover most customers. The fourth account allows 15 free transactions, which may be a little short for some folks. In each account, the per-item fee is 50 cents.

Checks or images returned
Of the 51 accounts surveyed, 32 (63 percent) return checks each month. That's up from 47 percent in March. You may get the actual check or an image. Check imaging was considered the same as returning checks for the first time in March 2001, making comparisons to prior studies irrelevant.

For interest accounts, 59 percent return checks/images, up from 47 percent in March. Among noninterest accounts, 75 percent return checks/images, up from 50 percent in the previous study.

These percentages are much lower than at traditional banks, where 96 percent of interest accounts and 85 percent of noninterest accounts return checks or images.

ATMs
All 27 Internet banks surveyed offer ATM cards, and 56 percent own ATMs. That's consistent with previous studies dating back to March 2001.

The big difference between Internet and traditional banks is that 81 percent of Internet banks don't charge their customers for using another bank's ATM, while 88 percent of traditional banks stick their customers with a fee if they stray and use another bank's ATM.

More than half (56 percent) of the Internet banks reimburse their customers for ATM surcharges imposed by other banks. The percentage of Internet banks offering reimbursement is down from 62 percent in March.

Reimbursement varies by institution but usually involves a dollar limit and/or a certain number of transactions. The most common offers are: up to four transactions of $1.50 per month, or up to $6 total per month. Other institutions may not reimburse ATM surcharges but waive their own non-bank ATM fee for a certain number of withdrawals per month.

Average surcharge
If you're hunting for an ATM in an area where you can't find one belonging to your bank, an Internet's ATM will probably be cheaper.

Both Internet and traditional banks surcharge non-customers for using their ATMs. The average surcharge at Internet banks is $1.38, up from $1.37 in the past two studies, but still below the $1.49 average charged by traditional banks.

As in previous studies, none of the Internet banks charge an annual fee to use an ATM card, compared to 9 percent of traditional banks that do charge a fee.

Also, none of the Internet banks charge a fee for point-of-sale usage. About 17 percent of traditional banks charge a fee when you swipe your card at a cash register terminal.

Debit cards
Debit cards are offered by 93 percent of Internet banks. That's up from the 85 percent to 88 percent range seen in the three previous studies, but still below the high of 96 percent in October 2000. Debit cards are offered by 96 percent of brick and mortar banks.

Debit card and ATM card pricing
Ninety-six percent of Internet banks have the same pricing structure when it comes to debit and ATM cards. Only about 75 percent of traditional banks have the same pricing structure for the two cards.

-- Posted: Sept. 30, 2002