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Online vs. offline
checking accounts
By Michael
D. Larson • Bankrate.com
 After
taking a look at Bankrate.com's latest semiannual Checking Account
Pricing Study, one big question jumps right out at you:
Why the heck aren't more people
banking online?
While traditional banks and thrifts
continue to gouge holders of interest-paying checking accounts and
raise fees across the board, online banks keep lavishing customers
with perks, according to the survey. The survey included information
about accounts at Internet-based institutions as well as brick-and-mortar
ones for the second time, and the difference between online and
offline banking is clear as day. Internet banks pay higher yields,
require lower balances to avoid fees, charge less for bounced checks,
follow friendlier ATM policies and offer a higher percentage of
accounts that cost nothing at all.
"With Internet banks, you can
have the cake and eat it too," wrote Greg McBride, a Bankrate.com
financial analyst. "The ability to have a free checking account
that pays an attractive yield is the hallmark of many Internet banks.
For the customer comfortable banking with an Internet institution,
this is the impetus to bank with a virtual entity."
Where the deals are
Online accounts blow the competition away in just about every category.
The average yield on interest-bearing Web accounts was 3.85 percent
in the most recent survey -- more than triple the 1.17 percent average
among traditional interest-paying checking accounts. Someone with
$5,000 to park in an online account would have $5,193 after a year,
almost $150 more than any chump foolish enough to stash money away
at a bank down the street.
But the real advantage to online
accounts, at least for everyday consumers without six-figure salaries,
is their fee structure. Consider this factoid: Bankrate.com surveyed
527 branch-based interest accounts and 30 Web-based ones. Even with
the much smaller sample size, the online group had more free interest-bearing
accounts, 13 vs. 10. So much for George Bailey.
 Even
when online holders do get stuck paying fees, they pay less. The
average monthly service fee for interest-bearing Web accounts is
$4.13, compared with $10.43 in the brick-and-mortar world. It should
be noted it's much easier to avoid that charge too. Consumers need
only $550 on average in an online interest-paying account to dodge
fees. Offline banks require more than $2,200. Non-sufficient funds,
or NSF, fees are also slightly lower on average among online banks
-- $22.51 vs. $23.87.
"The clear advantage of Internet
checking accounts over those of traditional brick-and-mortar banks
are higher yields, a higher proportion of free accounts and much
lower balance requirements," McBride wrote.
Online banks make it much cheaper
for customers to get at their money electronically too. Only 8 percent
of offline banks allow account holders to make withdrawals at ATMs
they don't own without charging a fee, where as 88 percent of online
ones do. A majority of the Web banks reimburses customers for surcharges
assessed by ATM owners too. Most cover four charges a month up to
$1.50 each.
It should be noted that every
Internet bank polled allows free point-of-sale transactions as well.
That allows customers to get cash back at drug stores, grocery chains
and other places without paying a cent. Only 83 percent of traditional
institutions offer the service free.
Bottom line? Customers willing
to do business with Web-based banks are far and away better off.
--Posted: Oct. 2, 2000
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