How to Choose an Online Banking Service
Updated July 2012
Online checking and savings accounts vary in
features and yields
banking" is a broad term that covers several different types of banks.
It's important to remember that online checking and savings accounts offer
variable interest. The interest rate can change overnight, and the trend is
downward. Banks often offer an attractive interest rate until they accumulate
the desired number of customers, then start to lower the yield.
two ways to specify the rate of return on money deposited in an account: the
interest rate (usually compounded daily), and the annual percentage yield
(APY). The APY is a bit higher, because the banks pay interest on the
accumulated interest. Thus, money left in for an entire year earns the higher
reports on personal finance sites and online bill paying for services that can
track all of your financial accounts and help you manage bills. Personal
finance sites and online bill paying can both help manage your
assets and expenses.
say the following about shopping for an online banking account:
sure your online bank is insured by the FDIC. Be
sure you keep your deposits in each bank below the FDIC limit of $250,000 per
bank. Also be sure you understand how the FDIC defines these limits when it
comes to joint accounts, trusts and beneficiaries. Since banks with different
names can actually be the same bank, experts recommend checking the FDIC bank
ID numbers to be sure you're really using different banks.
can also check the bank's ratings. BankRate.com
provides ratings as of December 2011; ratings are meant to assess the
institution's financial health, not customer service or interest rates. You can
also check bank ratings at Bauer Financial, or call Veribanc for a bank rating
by phone (*Est. $10) at Veribanc.
your priorities. If you want to save for a specific
purchase instead of incurring credit card debt, then the extra support provided
by a savings program such as SmartyPig might be just the thing. If you want the
highest interest rates on checking, consider a rewards checking account. If you
travel a lot and need a nationwide ATM network, that convenience may matter
more to you than higher interest rates.
the fine print and watch for fees. Though many online
banking accounts don't carry fees, there may be extra charges for low balances
or ATM use, so it pays to read the fine print. ATM and overdraft fees can add
up fast. Watch, too, for restrictions on withdrawals and find out how long the
bank takes to credit a deposit to your account.
the teaser rates. Just about all online bank yields are
variable. Interest rates can go up or down without notice, and some promotional
rates could last just a few months.
can differ between an online bank and its corporate parent. Experts say it pays to check out online accounts at your local bank, because
the rates may be higher. BankRate.com publishes listings of the highest-paying
accounts, and MoneyAisle.com, CheckingFinder.com and BankVibe.com, among
others, also help locate high yields.
about how you want to make withdrawals. Online savings
accounts usually don't issue checks, whereas money market accounts provide
checks but restrict the number of withdrawals per month. If you plan to use
ATMs, be sure to check availability in your area, plus any fees, daily limits
and reimbursements available. Note that some ATMs are located in convenience
stores, restaurants and even bars -- so be sure that the ATMs are located where
you'll feel comfortable. If you plan to transfer funds from an online account
to a local one, be sure you know how many days to allow for this.
can take longer at online banks. Because you might have
to mail checks for deposits, you have to account for mailing time. Bank
policies vary widely about how long it takes to make funds available after the
bank receives a check. Direct deposits and bank transfers are faster, but a
bank transfer may also take several days. Many online banks -- but not all -- offer
remote deposit options via a home computer and/or a smart phone or tablet.
careful about the requirements for reward checking. These accounts offer the highest interest available (at the time of our report)
but have stringent terms to meet. Be sure you understand what you need to do to
get the interest and avoid fees, and that you can accept the risks of using a
for zero liability for unauthorized use. Not all
online accounts come with a guarantee to reimburse users for any funds lost
through unauthorized use.
out for phishing scams. In scams such as phishing, you're
asked to click on a link to reveal more about your banking account. If you do,
you're open to having your assets stolen by revealing account numbers or
- Be sure your own computer is safe. Experts say it's crucial to keep up to date with the security patches for your
operating system and to keep current with good security software.
ConsumerSearch has separate reports on anti-virus software, firewalls and Internet security software.
- Be cautious about mobile banking. It's
convenient to be able to do online banking from your cell phone or laptop, but
security may be jeopardized at wireless hot spots. Be sure you understand
wireless security and that your bank encrypts the transmissions.
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