The top 10 online banks

Online banking can offer convenience — and even added security. Our list of the best includes Internet-only outfits as well as brick-and-mortar banks. Here’s how to compare.

Five years ago, Greg Downing looked into online banking but balked at his bank’s $5 monthly fee to pay bills online. This year, Downing read about a Web-only bank that charged a much lower price: free.

“I gave NetBank a chance, and I’ve never looked back,” says Downing, 33, a project manager for Acambis, which makes smallpox vaccine. Does he miss his old brick-and-mortar bank? “Only when I have a jar of coins to deposit,” he says.

As Downing discovered after he opened his NetBank account, paying bills with a mouse click is only one labor-saving feature offered by online banks. Other attributes include viewing images of canceled checks, transferring money to accounts at other banks and brokerages, and receiving e-mail alerts if, say, your balance runs low. And in the past few years, some online banks have cut the time it takes for electronic payments to clear from five business days to two.

Downing went with an online-only bank. But your best bet could be the same institutions you see every day. Brick-and-mortar bankers are also the largest online players, with the resources to bring a wide range of services to their natural customer base. (The two largest are Wells Fargo, with 6.8 million online-banking customers, and Bank of America, with 13.6 million.)

Best of both worlds

Watchfire GómezPro, an Internet research firm, ranked the top 10 online banks based on the features that consumers find most important. Competition is stiff, and that’s caused a rough parity in services. All of the banks provide the key services that customers want most, including guarantees against computer fraud and late bill payments, according to Watchfire. Among the top five, in particular, the differences are minor.

Wells Fargo is ranked first, in part because of its Quicken-style tools for viewing your spending habits. Then again, second-place Citibank is better than Wells or third-place Bank of America at “money movement” — the ability to funnel funds to another account, user or bank. Fourth-place E*Trade Bank provides excellent alerts (such as letting you know when your balance is low), but it doesn’t allow you to stop payments on checks. Reverse that for fifth-place Huntington: no low-balance alerts, but it will let you stop payments. E*Trade also does an excellent job integrating its online banking and brokerage services.

Internet-only banks are giving the big bank sites a run for their money and adding customers quickly. Because of low overhead, they often pay better rates on savings accounts. For example, a Citibank money-market account with $15,000 recently paid 1.5%. A similar account at First Internet Bank of Indiana paid 3.04%.

And an online-only bank can offer some personal touches. Adam Megacz, a dreadlocked, 26-year-old University of California at Berkeley graduate student, likes First Internet Bank’s old-fashioned customer service. “You really do get the small-bank feel when you call them,” he says. Megacz, who has been a First Internet Bank customer for five years, often transfers funds electronically through the banking industry’s Automated Clearing House network. “I can call up the bank and talk to Mark, the ACH guy,” he says.

One drawback to online-only banks is making deposits. For payroll checks, this usually isn’t an issue, because most customers use direct deposit. But if direct deposit isn’t available, you’ll have to mail deposits to the bank (envelopes are provided), use an ATM that accepts deposits for your bank or transfer funds from an account at another bank.

Of course, mailing a check will increase — by days — the time it takes for your check to clear. And, says Online Banking Report publisher Jim Bruene, “People don’t like to make deposits at an ATM,” particularly one that isn’t owned by their bank. When Megacz was living paycheck-to-paycheck two years ago, he’d send checks to First Internet Bank via FedEx or express mail, which, he says, can be a pain.

Another virtual issue: Internet-bank users may pay steep ATM fees for cash withdrawals. That’s true particularly if your financial institution does not have teller machines in your area. First Internet Bank eases the pain by refunding up to $6 in ATM fees each month for its interest-checking customers. Although NetBank doesn’t refund fees, its 8,000 machines across the U.S. are free to its customers, who can locate the ATMs at the bank’s Web site. Downing used the locater to find machines near his home in Canton, Mass.

What about safety?

The main issue consumers have with online banking is security. Banks are working to persuade customers that online banking actually adds to your financial security, says Chris Musto, vice-president of research for Watchfire GómezPro. That’s not an easy sell to consumers who see the elimination of paper statements and returned checks as a savings for the banks, with no benefit for them.

But Musto says eliminating paper is itself a safeguard. Statements can’t be lifted from your mailbox or plucked from your trash — and that’s just one way online banking offers increased security. For example, some online banks offer a service that presents your bills on the banking site. By using this feature, you can eliminate credit-card and phone statements sitting exposed in your mailbox. And e-mail alerts from some banks — such as Wells Fargo and Citibank — can notify you when large sums have been withdrawn.

You can also check your statement online anytime you wish. Online visits, Musto says, “reduce the impact of an act of fraud.” For example, if your credit card or checks were stolen, you might not discover that until your next paper statement arrived in the mail. With online banking, however, you can find unusual account activity much sooner (people check their accounts online five times a month, on average).

Features to look for

Online banking is evolving rapidly. To make sure you get a top performer, look for the following features:

No fees. About 80% of online bill-pay accounts in the U.S. are free, according to Online Banking Report’s Bruene, and “about half” of those are customers of Bank of America. Many banks offer free bill pay only in limited cases. Wells Fargo, for example, charges $7 per month if your average monthly account balance falls below $5,000. And after three months of inactivity, NetBank levies a $5 monthly fee on accounts of less than $3,000. EverBank charges $5 per month if your monthly balance is less than $1,500. First Internet Bank customers with free checking pay $4.95 a month for online bill pay, but customers with interest checking accounts (who pay $10 a month) get it free, as long as their balance stays above $500.

Good Web tools. Online banking should be simple and quick. A bank’s site should be a snap to learn and easy to navigate, and should provide essential features, such as images of your cashed checks and tools for budgeting. Bank sites have come a long way in recent years, and you don’t have to pick a big bank to get a good online experience. The best sites also provide recent transaction reports (including payments, transfers and deposits), and warn you of potential security threats, such as e-mails from phishers.

A good bank site provides scanned images — both the front and back sides — of your canceled checks. Most major banks offer this service, including every bank on the top-10 list.

Why are check images important? Let’s say you forget to record check #1454 in your register. You go to your bank’s site and read your account summary, which lists only the check number and the amount. Who’s the payee? To find out, view the check’s image.

And a good site also archives several months’ worth of account statements and check images. Archives vary considerably. For instance, Bank of America archives 18 months of statements but only 60 business days (about three months) of check images. EverBank, on the other hand, provides 15 months of statements and 13 months of images.

Fund transfers. Transferring money to your accounts at other banks and brokerages is a big convenience. Some banks let you set up automatic deductions to make regular payments to, say, an IRA at a mutual fund company.

Account aggregation. This is the ability to manage multiple accounts, including those from other banks, at your bank’s Web site. Of the top 10 online banks, only Citibank and Wells Fargo have this feature.

E-mail alerts and reminders. You’ll want to be notified if there’s excessive activity on your credit card, if someone tries to access your account with an incorrect password or even when you’re low on checks.

Budgeting. Wells Fargo’s “My Spending Report” organizes your expenditures into categories, including groceries, restaurants and lodging. It’s a great way to see how and where you spend your money. Citibank and Bank of America have similar features.


Note: *First National Bank of Omaha.

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