Minimum to open
It costs more to open a checking
account at an Internet bank but in return you'll
get more interest, lower fees and lower minimum balance requirements
to avoid those fees.
The average minimum to open an account and earn
interest at Internet banks is $708.33 vs. $494.73 at traditional
banks. For noninterest accounts, the minimum to open is $105 at
Internet banks and $59.49 at traditional ones.
Monthly service fees
Monthly service fees will take a smaller bite out of your
account balance at an Internet bank. The average monthly service
fee on interest accounts at Internet banks is $5.86 vs. $10.86
at traditional banks. On noninterest accounts, the average is
$2.20 at Internet banks, while their brick-and-mortar counterparts
charge $3.72.
Minimum to avoid fees
Internet banks require less than half of the balance that
brick-and-mortar banks demand to avoid monthly service fees. For
interest accounts, the average is $1,088.24 at Internet banks
vs. $2,257.82 at traditional banks. The average at Internet banks
for noninterest accounts is $80 as opposed to $245.37 at traditional
banks.
Yields
Internet banks have a big advantage over traditional banks
when it comes to the yield paid on interest checking accounts.
The average yield at Internet banks is 1.05 percent vs. 0.27 percent
at brick-and-mortar institutions.
Several of the Internet banks surveyed pay 1.50
percent, but Presidential Bank blows them all away with 2.75 percent
on its Internet Checking Plus account. It requires $1,500 to open
and you must maintain a $1,000 balance to avoid the monthly service
fee.
Patty Kite, vice president of retail operations,
says it's the lowest yield since the account was first offered
in 1999. The account, she says, is so successful that it accounts
for half of the bank's total deposits.
"We're trying to attract the average checking
account customer. It does require direct deposit and you must
apply through the Web site. It helps us cut down on the cost of
opening new accounts."
The low yields offered by traditional banks highlight
the benefits of free checking accounts, which, as defined by Bankrate.com,
means no monthly service fees or per-item fees regardless of balance
or activity.
Wachovia customers who forego interest can open
a free checking account for $50. If they want interest, the account
that requires the lowest minimum balance to open is the Crown
Banking account. It pays 0.10 percent and also requires just $50
to open, but you must maintain a $5,000 balance to avoid the $20
monthly service fee. Is the 0.10 percent interest really worth
maintaining a balance of $5,000?
Spokeswoman Mary Beth Novarro points out that the
$5,000 also can be comprised of funds in a Wachovia savings or
money market account, and that the Crown account includes many
extras.
"Among the things customers get are free checks,
a gold check card with no monthly fee, two fee-free non-Wachovia
ATM transactions per month, free online banking, free online bill
pay and no-fee traveler's checks and notary services."
Bank of America's Regular Checking isn't free by
our definition, but it still highlights the benefit of saying
no to interest. The Regular Checking account is the bank's lowest
minimum to open a noninterest account. It requires $100 to open
and $750 to avoid the monthly $9.50 service fee. The Advantage
Checking account pays 0.10 percent interest, requires $100 to
open and $5,000 to avoid the $20 monthly service fee. Spokeswoman
Ashleigh Adams says customers who opt for the interest account
do so because of the extras.
"There really are a lot more advantages to
it, including preferred rates on money markets, CDs, selected
loans and lines of credit."
Bankrate senior financial analyst Greg McBride says
it boils down to knowing yourself as a checking account customer.
If you would make good use of those extras, then the interest
accounts may be right for you. But for most people, the freebies
come at too high a cost.
"It's a matter of opportunity costs,"
he says. "Do the benefits offset the fact that you have to
strand $5,000 in those accounts? A cost-conscious consumer is
likely to say no."
