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Ten tips
© St. Petersburg Times, published January 26, 2003
If you rarely step foot in a bank branch anymore and you're tired of the high fees and low yields you're receiving on your checking account, then an Internet bank may be a good option for you. Internet banks' average yields are nearly three times what traditional banks provide. The only catch is that you typically must maintain a high minimum balance to avoid fees.
1. Understand how it works. Online banks save millions each year on operating expenses because they don't have branches to maintain. They are able to pass that savings on to customers in the form of lower fees and higher yields on deposits.
2. Compare the yields. It may not be much, but the average yield of 1.51 percent on Internet checking accounts is better than the 0.57 percent average yield offered by traditional banks, according to a survey conducted by Bankrate.com in fall 2002.
3. Examine the fees. Some Internet banks offer checking accounts with no monthly service fees, but most require high minimum balances -- an average of $1,308 -- to avoid fees.
4. Look for free services. Many Internet banks offer free services, such as online bill payment, a starter kit of free checks, unlimited check writing and debit cards with no point-of-sale charges. Be on the lookout for services that stop being free after 90 days.
5. Ask about ATM reimbursements. Because many Internet banks don't own ATM machines, you'll likely need to use an ATM at another bank. Most online banks don't charge fees for that, and they often reimburse you for the other bank's fees for three to five ATM transactions a month.
6. Get cash at the grocery store. One way to avoid ATM fees is to get cash back when you make a purchase at a supermarket or drug store.
7. Do you have enough to open an account? You'll need about three times more money to open an interest-bearing account at an Internet bank than at a traditional bank, in part to make up for the cost of paying higher yields. The average minimum required is $953.
8. Shop around. Before you choose a bank, compare prices for the fees and services that matter most to you. If you bounce checks often, find out what you would have to pay for a returned check.
9. Know where to look. As of last fall, Bankrate.com singled out these Internet banks as having the top five online checking account deals: VirtualBank, American Bank, UmbrellaBank, Stonebridge Bank and 1st Community Bank.
10. Concerned about security? Any financial institution with an online presence could succumb to hackers, so traditional banks aren't necessarily safer than Internet banks. That said, opt for an online bank rated highly by Bankrate.com and Gomez, insured by the Federal Deposit Insurance Corp. and protected by security measures such as those provided by VeriSign.
-- Compiled by Laura T. Coffey. Sources: Bankrate.com (www.bankrate.com); Kiplinger's Personal Finance magazine (www.kiplinger.com)