checking

Are online checking accounts for you?

a pen and a check
Highlights
  • At some online banks, you still have to mail in the signature card.
  • "As with any bank account, you'll want to know the fees."
  • Customer service at virtual banks means you'll likely talk to a stranger.

Online checking accounts aren't for everyone. It's easy to be lured by virtual banks' high interest rates. But the accounts can also come with drawbacks, such as deposit delays, impersonal customer service and limited checking options. So, it pays to know your checking account needs -- and how much hand-holding you want.

"One size doesn't fit all," says Stessa Cohen, a research director at Gartner Research. "You have to be pretty self-sufficient and comfortable transferring money electronically."

What's more, online checking fees and structures vary widely. So, consumers should compare features, says Cohen. For example, ING Direct only offers electronic check writing; paper checks must be requested, though they're free. Conversely, Ally Bank, once GMAC, issues free standard checks with its online accounts.

Technology prowess also counts. "Many online banks have created good mechanisms for transferring money in and out," says Ron Shevlin, a senior analyst at the Aite Group. But at some online banks, you still have to mail in the signature card after filling out an application, he says.

And you must rely on online tools. According to Cohen, "you're more dependent on a bank's ability to roll out something interactive. And security could be better."

Before shopping for an online checking account, consider these drawbacks.

Fees vary widely

Not every online bank has no-fee checking. Fees can range from outgoing wires to paper checks to non-electronic statements and more. For example, Incredible Bank charges $15 for non-electronic statements and $20 for a paper check. Redneck Bank charges 50 cents per online bill pay if you go over the prescribed limit. Fees can quickly eat up interest returns.

"As with any bank account, you'll want to know the fees," says Cohen. "For example, are you charged for checks?" Also, most virtual banks don't charge ATM fees, but they may not refund out-of-network charges.

Resolving problems can be tricky

"Sometimes problems are better handled face to face," says Shevlin. "When you walk in, issues can be more easily resolved." And customer service at virtual banks also means that you're likely to talk to a stranger -- unlike at your community bank.

Check out an online bank's customer service first, says Cohen. Do they have secure instant messaging? Is it easy to use e-mail? Do they have follow-up e-mail? "If you have a question, getting an answer may be difficult," she says. "And the method may be just e-mail."

Deposit can be delayed

Electronic transfers are usually fast and free. But paper check deposits can take time to mail and then clear. For example, check deposits take five business days to clear after being mailed in to Incredible Bank. "Getting money into the account is the biggest drawback," says Jim Bruene, editor of Online Banking Report. "People like to drop off checks at a bank." Deposits can be done by scanning them, but that's still relatively new.

Cohen recommends asking an online bank if it offers remote deposit capture, though. "The bank should provide lots of ways to get to you," she says.

Offerings are limited

Cohen says that virtual banks may only offer one or two checking account types. "Virtual banks are designed to be simple and easy," she says. "Those with complex banking needs may need another bank." Indeed, 29 percent of people surveyed by Gartner this January use two online checking accounts.

For example, Ally Bank offers only one online checking option. "We don't have the breadth, but we're feature rich," says Dave Vasquez, customer care executive at Ally Bank.

"You can get good prices locally on checking accounts," says Bruene. "Why go online when you're not saving that much money?"

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