Online Banking
Online
banking, despite a rocky start, is becoming the rule rather than the exception.
And though some consumers remain wary of making financial transactions over the
Internet because of security concerns, Forrester Research forecasts that in two
years, 76 percent of U.S. households with Internet access will bank online.
How
should you select an online bank if you haven’t already? Much like a walk-in
bank. You’ll want one that offers the services you need, pays competitive
interest rates on deposits, is convenient to use, and doesn’t gouge you on fees.
From ‘banking hours’ to
virtual banking
The
way we bank has completely changed over the past three decades. Thirty years
ago, when you needed money, you visited a pleasant fortress during weekday
“banking hours,” probably stood in line for a while, and had a human teller
count out your cash. But just a few years later, banks launched networks of
automated teller machines across the country. Visiting the local branch for
routine business became the exception for many consumers, and some banks
actually discouraged face-to-face interaction with bank tellers.
Now
we appear to be in the midst of another huge change. When online commerce
exploded in the late 1990s, banks were slow to catch on. And even after the
Dutch bank ING Direct started to provide online banking to Americans in 2000,
most of our traditional banks acted even less nimbly than usual, suspicious of
the online banking “model”—in other words, they couldn’t figure out how to make
money from it. When banks tried to fuse online banking onto their traditional
savings and checking accounts, they sometimes stumbled. Bank of America, for
example, charged its customers for the privilege of paying bills online, and
Citibank tried to establish an Internet-only bank separate from its other
operations.
What’s the catch?
With most banks, the more products and services you
use, the more attractive you are as a customer. So you’ll get better deals if
you link your online checking with, say, a mortgage, brokerage account, and
credit card. If you want a stand-alone checking account with no such links,
expect to incur a monthly fee, which might range from a couple of dollars to $25.
For this analysis we looked at stand-alone
checking, savings, and money market accounts, along with CDs, at the largest
online banks. We rated them based on the interest rates they pay on deposits
(minuscule as they now are); service fees; the ease of transferring funds
between accounts; and amenities such as cell-phone banking, electronic bill
payment, and integration with personal-finance software.
The veteran online banks ING Direct and HSBC Direct
landed at the top of our ratings primarily because of their consistently higher
interest rates, if you can consider a 1.65 percent annual percentage yield
high. In contrast, Chase pays one one-hundreth of a percent on savings and
money market deposits you keep with them.
But the online gap between ING and HSBC and other
larger banks is no longer as great as it once was. All the banks we reviewed
offer cell-phone banking with at least some, if not all, of the major devices
and carriers. And all of them support at least one of the two major
personal-finance software suites, Quicken and Microsoft Money.
Fees still make us grumpy though, and some of the
online banks assess them for not maintaining minimum balances or not
integrating with another product of that bank. Of the banks we rated, Chase was
the most egregious assessor in both the breadth and depth of fees, imposing,
for instance, a $12 fee if your money market balance falls below $1,500.
Bank of the future
A look at banking practices abroad provides a
preview of some of the innovations we might expect to see in the next several
years:
Contactless payments
In the U.S. we’re mostly paying for things by
swiping magnetic strips through wobbly card readers, just as we did a decade
ago, while many clever ways to make quick, contactless transactions are
becoming commonplace in Malaysia and Abu Dhabi. Contactless payment lets you
wave a card, fob, or cell phone in front of a reader that makes the
transaction. Currently, an ambitious contactless project is being implemented
in France, as major retail chains begin to equip check-out lanes with the
technology.
Biometric ATMs
It may seem like something from a Hollywood action
movie set in the near future: an ATM that dispenses cash after recognizing your
fingerprint or unique vein pattern in your palm. But such bank machines are
already in use in South Asia and Colombia.
Deposit checks from home
Even though check-writing is being supplanted by
electronic payments, 30 billion checks were paid in 2006, the most recent year
for which data is available. The NCR Corp. has introduced a product that will
allow bank customers to deposit checks by scanning them with an ordinary
flatbed scanner.
