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Checking Study: Online vs. traditional banks

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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.

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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. surveyed a total of 17 online checking accounts at 10 institutions. A total of 10 interest accounts and seven noninterest accounts were surveyed.

Average 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 banks.

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.

The 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 banks.

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 of $72.72.

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.

Average 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 fees.

Average 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.

-- Posted: May 11, 2005




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