Checking Study: Online vs. traditional banks
the most recent version of the checking study.
Many people need that comfortable feeling they get dealing with
a living, breathing bank teller. But if you can build that same
rapport with your computer keyboard, you can save some cash by doing
your banking online.
By most measures, online banks
are a far better deal than their brick-and-mortar counterparts.
While the penalty fees and required minimums to open an account
are similar, the minimums to avoid fees are much lower in online
banks. Perhaps more important, the yields from online bank checking
accounts are much higher.
Of course, you lose the convenience of your friendly
corner bank branch -- and free ATMs become much harder to find.
It's just a matter of how much you want to pay for that convenience.
Bankrate.com surveyed a total of 17 online checking
accounts at 10 institutions. A total of 10 interest accounts and
seven noninterest accounts were surveyed.
yield: While rising interest rates may not be having an effect
on checking yields at brick-and-mortar banks, the increases are
obvious among online banks.
The average yield jumped from 0.85 percent to 1.31
percent since fall 2004, giving online banks a full-percentage-point
advantage over the average yield of 0.28 percent at brick-and-mortar
However, the yields still fall well short of inflation
and the yield that can be obtained in other liquid investments,
such as money market accounts. The checking account remains a poor
parking place for excess cash.
Average minimum to open interest-bearing
account: Internet banks offer higher yields in interest checking,
but do require a higher balance to open the account.
average minimum to open an interest-bearing account at an Internet
bank is $660, an average that has fluctuated significantly over
the years due in part to the limited number of accounts surveyed.
The current average compares to $445.54 at traditional
Average minimum to open noninterest
account: The average amount needed to open a noninterest
account at an online bank is now $85.86, consistent with the findings
of prior surveys containing just a few accounts.
This is in line with the brick-and-mortar bank average
minimum to avoid fees in an interest-bearing account: The
average minimum balance required to avoid fees declined significantly,
a move exaggerated by the limited sample size.
The current average among online banks is $450, just
one-fifth of the $2,296 average seen at traditional banks.
Average minimum to avoid fees
in a noninterest account: The profile of the noninterest
account is of the low-cost checking alternative, and this holds
true both at online banks and traditional banks.
Among the seven noninterest accounts surveyed at online
banks, the average balance requirement to avoid fees is $171.43.
This is a little more than half of the average requirement of $301.47
seen at brick-and-mortar banks.
monthly service fee for interest-bearing account: The average
monthly service fee on interest accounts at Internet banks is $4.10,
as compared to an average of $11.08 at traditional banks.
However, even at $4.10, the fee dwarfs the $1.09 in
interest that would be earned each month on a $1,000 balance. Maintaining
the balance requirement to avoid the fee is more easily accomplished
at online banks, with a better yield as a reward.
However, even with the lower balance requirements
and better yields, stranding money in an interest-checking account
isn't the most efficient use of excess cash.
Average monthly service fee
for noninterest account: The average monthly service fee
for noninterest accounts at Internet banks is $3.57, in line with
the $3.42 average at brick-and-mortar banks.
At both traditional and online banks, noninterest
accounts have lower balance requirements and lower monthly service
bounced-check, or NSF, fee: Both online and traditional banks
assess a similar fee for bouncing a check, known as the non-sufficient
funds or NSF fee.
At online banks, the average fee is $24.41, compared
to $27.13 at traditional banks. In both cases, this is the average
fee assessed for the first bounced check that is not paid.
Banks may assess a higher fee for additional bounced
checks or for checks that are honored when the account is overdrawn.
Online access: Predictably,
all interest and noninterest accounts surveyed at the online banks
offer online access.
ATM fees: Because a
number of the online banks surveyed do not own ATMs, fees for ATM
use are considerably less prevalent. Of the three institutions surveyed
that assess a surcharge, two have a fee of $1.50, and the other
charges $1 for nonaccount holders to use their ATMs. Even this is
consistent with brick-and-mortar banks, where the most common surcharge
has long been $1.50. Only one of the institutions surveyed assesses
a fee to their own account holders for using a nonbank ATM, charging
$1.50. That institution, Imperial Capital Bank, also has brick-and-mortar
branches. The fee charged is consistent with other brick-and-mortar
banks that most often charge $1.50 for nonbank ATM withdrawals.