Traditional Banks Go Online

Four big banks dominate nationwide banking

Big national banks offer are one option for online banking, usually offering free checking, mobile banking (by cell phone) and huge national networks of branches and ATMs. The drawback is that due to the current financial situation, they pay very low interest rates or even none at all. If you travel a lot, however, the extra convenience might be more important than the low yields. Bank of America, for example, has 18,700 ATMs across the United States. Wells Fargo has over 12,000 ATMs but 6,650 branches -- more than any other bank -- now that it's bought Wachovia.

Four big banks dominate online banking here in the United States: Bank of America, Chase, Citibank and Wells Fargo. A March 2, 2009, article in Advertising Age notes that Chase (also known as JPMorgan Chase) is "widely seen as the healthiest of today's financial institutions," at least for now. When Washington Mutual (known online as WaMu) failed in September 2008, Chase took it over. WaMu is still accepting new accounts, but its website notes that all WaMu customers will soon become Chase customers. Another big bank, Wachovia, didn't fail but was bought at the end of 2008 by Wells Fargo.

Among the big online banks, customer satisfaction varies

With a few exceptions, terms and interest rates at these big banks don't differentiate them very well. Instead, it's their customer satisfaction ratings plus extra services and features that set them apart. The two banks that are being absorbed into Chase and Wells Fargo -- WaMu and Wachovia, respectively -- have consistently earned better scores for customer satisfaction than their new owners. The mergers expand the ATM networks, but it remains to be seen how customer service might change as the mergers become complete. For example, WaMu offers live phone support 24/7, but Chase does not.

WaMu earns top ranking for customer satisfaction in the April 2009 ratings at ComScore, a well-known consulting firm to financial institutions. The WaMu return on savings accounts is low, with a current annual percentage yield (APY) of only 0.85 percent. Checking accounts are free, however, with no minimum balance -- and include one free overdraft per year.

Chase isn't so generous. You must register online before they will show you any details about their online accounts. Checking (*Est. $6 per month) becomes free only if you set up a direct deposit or use your debit card five times a month. The basic savings account pays next to nothing, and comes with lots of restrictions and potential fees on withdrawals. However, as noted earlier, Chase has a good reputation for stability, and ranks second (behind Wachovia) in the 2008 ratings at the American Customer Satisfaction Index (ACSI). The 2009 ComScore report shows that customer satisfaction with Chase is increasing.

Wachovia offers free checking with some special savings incentives. For each online bill payment debit card use and automatic withdrawal, the bank adds $1 to your Wachovia Way2Save savings account. The first year, you're guaranteed a bonus APY of 5 percent (as of May 2009) but it's limited to $300 -- so you'd get this return on a balance up to about $6,000. Second- and third-year rates are much lower. By linking your checking to the savings account, you can avoid any overdraft fees.

However, there are some drawbacks to online banking at Wachovia -- including fees for transfers to non-Wachovia accounts (*Est. $3, or $10 for next-day service), plus fees for using non-Wachovia ATMs.

Wachovia's new owner, Wells Fargo, has trailed behind the other big banks in several surveys of customer satisfaction. However, the 2009 ComScore report shows customer satisfaction with Wells Fargo rising, and when it comes to satisfaction with bank websites, Wells Fargo earns the top spot. As another plus, Wells Fargo offers free online money-management software called My Spending Report. Like Wachovia, it offers phone support 24/7.

Drawbacks to checking at Wells Fargo include a monthly fee (*Est. $5), waived only if you arrange a monthly direct deposit or maintain a balance of at least $1,000. To get free bill payment requires stepping up to a combined checking and savings account (*Est. $8 per month), with the same conditions or the option of automatic savings deposits. The savings account APY is low compared to online-only banks, and a major drawback is the fee (*Est. $2.50 in the United States, $5 abroad) for using a non-Wells-Fargo ATM.

Bank of America also charges a fee for using another bank's ATM (*Est. $2 in the United States, $5 abroad). Its network of over 18,500 ATMs is bigger than the 12,000 or so ATMs of Wells Fargo and Wachovia combined. Bank of America usually gets better ratings for customer service, except in the latest ComScore report, where it now trails the other four big banks. Checking is free, with no minimum balance or strings attached. You get free online money-management software called Portfolio. Phone support is provided seven days a week, but not at all hours.

Citibank does provide 24/7 phone support, but has fewer ATMs in its network. If you open an online account and don't live near a Citibank branch, however, ATM fees from other banks are reimbursed. Citibank's Ultimate Savings account currently earns a decent APY, roundly beating the miniscule APY at Bank of America. The main drawback is that Citibank online checking is free only if you meet any of several terms: a monthly direct deposit, or two online bill payments a month, or a combined savings and checking balance that stays above $1,500. (The exact amount of the monthly checking fee varies by geographic area.)

There are tradeoffs for all these banks, so your best choice depends on your priorities. If you want your savings at the same bank as your checking, then Wachovia and Citibank offer the best yields. (Keep in mind that these are flexible rates, so they change all the time.) Both Wells Fargo and Bank of America offer money-management software, and get good ratings for their websites. If you don't want to arrange a direct deposit or keep a big balance in your checking account, consider Bank of America. WaMu and Wachovia offer good terms, but there's no way to know how long they'll last as they become more like Chase and Wells Fargo.)