It’s the year 2000. Your computer didn’t explode. Your lender didn’t bill you for 100 years in back mortgage interest. Now the question is: Is it time to really make yourself part of the 21st century and bank on-line?
There are some clear advantages to “virtual banking.” The biggest is economics–on-line banks are offering some of the best interest rates in the country for simple checking accounts, as well as highly competitive rates for certificates of deposit.
If you regularly maintain a minimum balance in your checking account to avoid monthly fees, transferring that balance to a Net-only bank could land you a considerable amount of pocket change.
If, for example, you maintain an average balance of $1,000 in your checking account, your corner brick-and-mortar bank may pay 1 to 2 percent annually on that balance. But most such banks pay nothing, simply waiving your monthly checking account fee.
If, though, you put that balance in a virtual bank, you can get anywhere from 3 to 6.25 percent on your money, according to a recent survey by Bankrate.com. With that same $1,000 balance, you’d be $50 to $60 richer each year.
Better still, many virtual banks don’t charge monthly fees for your checking account regardless of your balance. Some provide you with a limited amount of free on-line bill paying, and several are reimbursing customers when another bank charges them for using its ATM.
WingspanBank.com (www.wingspanbank.com), for instance, pays 4.5 percent on checking balances, and it will credit your account for up to $5 a month in ATM fees that you might pay for using another bank’s machine to get cash from your Wingspan account.
Security First Network Bank (www.sfnb.com) doesn’t reimburse customers who have to pay outside ATM fees, but it does offer 6 percent annual interest on your checking account balance. It charges no monthly checking account fees, and you can pay as many as 35 bills on-line per month free of charge.
How can cyberbanks offer such deals?
“We don’t have the same infrastructure costs as other banks. We don’t have branches and tellers to pay for,” says Niel Bainton, advertising director for Security First Network Bank in Atlanta.
Bainton acknowledges, however, that the checking account rates are loss leaders designed to get customers in the virtual door and used to Web banking. Security First plans to lower the interest it pays on checking account balances in April, but it says the new rate will be competitive with those of other Web-based banks, most of which pay 3 to 4 percent on checking balances.
American Bank (www.pcbanker.com) offers staggered interest rates on checking deposits. But unlike brick-and-mortar banks that pay more for bigger deposits, American’s rates ratchet down as your balance goes up.
You get 6.25 percent on deposits of up to $9,999. But any portion of your daily balance that’s greater than $10,000 will earn 4 percent interest. Again, the idea is to get you in the virtual door.
“It’s like limiting the 99-cent bottle of catsup to one per customer because they’re selling a lot of them and they’re losing money on every one,” says Jim Bruene, editor of the Online Banking Report, a trade magazine published out of Seattle.
However attractive the Net banks’ deals may sound, there are obvious drawbacks to banking on-line, acknowledges Michael Cleary, president of Wingspan. You don’t have a corner branch where you can visit a teller, and you don’t get convenient extras such as notaries or safe-deposit boxes.
Getting cash out of an on-line bank isn’t difficult. Most allow you to use ATMs of other or unaffiliated banks at no charge (though the bank hosting the ATM may charge you), and you can write checks or use a debit card linked to your on-line account.
Getting money into the bank can be trickier. By and large, you either have to mail checks to your Net bank and wait for them to be deposited, or, for regular sources of income, you can set up an automatic deposit system.
Should you be worried about the security of your money with an on-line bank?
Perhaps not worried, but definitely cautious, experts say.
Though on-line banks have gone to great lengths to protect the safety of customer accounts by erecting multilayered firewalls and complex encryption systems, such banking does present certain risks by its very nature. After all, an on-line bank can’t know what you look like or ask to see your driver’s license if you want to withdraw a lot of money. Instead, both bank and customer must rely on a system of personal identification numbers and passwords.
Typically, Web banks will allow only a few attempts at typing an account’s identification numbers correctly before it will lock up the account on the assumption that somebody else is trying to guess your code.
You’re probably not foolish enough to give your PIN to someone untrustworthy. But you could give it out unwittingly, through a process called spoofing, says Bruene.
“Spoofers” set up a copycat Web site at an address that’s very similar to that of a legitimate on-line bank (or other on-line business). You see a start page that looks like the one for your bank, so you proceed to tap in all your personal identifying information. Later, the operators of the copycat site use that information to access your account, Bruene says.
Many cyberbanks have taken a variety of precautions to prevent spoofing of their customers. For instance, WingspanBank.com purchased virtually every similar domain name it could find, says Michael Cleary, the company’s president. That way, if you mistype, you’ll still get Wingspan. Other banks contract with a company called Verisign, which allows you to verify that you’ve hit the right site with a simple click.
Consumers, however, would be wise to simply double-check that they’ve typed the address correctly whenever they sign on to do their banking.
Before you decide to open an account at an on-line bank, be sure that it is a legitimate institution. Don’t assume that just because the word “bank” is in its name, it actually is one. Real banks must have a state or federal charter and be insured by the Federal Deposit Insurance Corp. The FDIC stands behind customer deposits of up to $100,000. Most legitimate on-line banks post the FDIC logo on their sites, but in any case, it can never hurt to check directly with the FDIC. Its Web site is at www.fdic.gov.
Finally, realize that on-line banks, just like their brick-and-mortar cousins, are increasingly likely to be selling non-bank investment products. If you buy shares in a mutual fund, or company stocks or bonds, you are subject to market risks. That means you can lose principal, regardless of whether you purchased those products from a bank or from a broker. Make sure you pay attention to all investment disclosures and regularly monitor your accounts, no matter where you transact your investment business.
