Jim Karpen Tips

Online banking

July 2000

No doubt you've heard the famous line from the infamous bank robber Willie Sutton. He was, as bank robbers and prison escape artists go, a genius--obviously capable of succeeding at almost anything. So someone once asked him, "Willie, why do you rob banks?" And he replied, "Because that's where the money is."

Willie would have a hard time with today's newest banks--those that only exist in cyberspace. There are now perhaps a couple dozen FDIC-insured, Internet-only banks: real banks but with no bricks and mortar--and no vault for Willie to break into. Just binary digits in computers.

These banks have lower costs in part because they don't have buildings, and they are only too eager to pass that savings on to customers. According to Consumer Reports, Internet-only banks offer good value. They require a lower minimum balance for avoiding monthly service charges, and their interest-bearing, free checking accounts have an average yield of 3.7 percent, compared to 1.05 percent for traditional banks. Plus, they let you pay bills electronically at no charge, whereas traditional banks usually charge about $5 a month.

There is obvious appeal in the notion of online banking. I'd love to handle all my financial transactions from my computer, including bill paying. But in reality, it doesn't work all that well yet. But it seems inevitable that almost all banking will eventually be done online.

One problem with online banking is making deposits. Since there is no local teller window, you must mail in deposits if they cannot be made electronically. And many companies aren't yet set up to receive electronic payment of bills. Also, online banks don't typically have a local ATM, so you'll be faced with transaction fees (though many online banks will reimburse you for a limited number of transactions per month).

What are the best deals online? One of the most highly rated is Security First Network Bank. Gomez Advisors gives them high marks in five categories: Ease of Use; Customer Confidence; On-Site Resources; Personalized Service; and Low Costs. They offer completely free checking--no minimum balance and no monthly service fee. Their minimum for opening an account is $100, and if you maintain a balance of $1,000, their Annual Percentage Yield is 4 percent.

I've signed up for CompuBank, partly because they have a nice range of services, but also because they have an appealing affiliate program. CompuBank is also highly regarded, earning a good evaluation by Gomez Advisors and being rated #1 by Smart Money. They offer free basic checking, free online bill paying, free ATM, and free domestic wires. Their rates as of this writing are 4.07% APY for checking, 3.56% for savings accounts, and 4.86% for money market accounts. They put $20 in your account when you sign up.

If you look around you can find better rates, though the service may not be as good. Everbank, for example, offers 6 percent on checking accounts. See Bankrate.Com to find the best rates.

When it comes to paying bills, most traditional and online banks now let you pay bills electronically, though Internet-only banks usually offer the service for free. You still receive your bills in the mail, but once you've set things up, making payment is simply a matter of typing in an amount into your online account and hitting the "pay" button. Then the bank either sends an electronic payment to your payee or sends them a check (since most billers aren't yet set up to accept electronic payment).

Services such as PayMyBills.Com take bill paying a step further. You actually forward all your bills to them. They scan them in and show you the information to you online. These services cost $9 or more a month.

So what would Willie think? It turns out, he didn't really say "Because that's where the money is." Even though that quote has been around for decades, and continues today, in his 1952 autobiography he admitted that some enterprising reporter made it up. And he goes on to write, "Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life. I enjoyed everything about it so much that one or two weeks later I'd be out looking for the next job. But to me the money was the chips, that's all." If Willie were alive today he'd probably be a hacker.

© 2000 by Jim Karpen, Ph.D.