Virtual banking has its pluses

  • Wednesday, April 28, 2004 9:00pm
  • Business

When I was little, going to the bank was a big deal. My grandmother would always make sure she was dressed nicely. She would pull out her best pocketbook. She fussed a little more with her hair.

"You don’t want the bank to think you’re some good for nothin’," Big Mama would say, even if she were only planning to make a savings withdrawal.

Big Mama knew the names of all the bank tellers. And they greeted her much the way bar customers acknowledged Norm in the "Cheers" sitcom. Everybody knew her name.

Today, automatic teller machines and online banking services make meeting a live body in a bank branch rarely necessary.

Big Mama never used an ATM. She would especially be suspicious about Internet-only banks, also called virtual banks because they don’t have brick-and-mortar branches.

A lot of folks still think like my grandmother. For example, here’s a question from a Maryland reader: "I’m trying to convince my mother to move part of her savings into an Internet-based bank because physical banks are paying so little on demand deposits. Her parents lost a bundle in a Depression-era bank failure, so the idea of her savings ‘being on the Internet’ fills her with horror. Can you point me to any books, government publications or other resources designed at helping seniors get comfortable with an Internet bank?"

Sure I can.

The first thing you should know is that Internet-only banks are governed by the same regulations as traditional banks and credit unions. However, since you can’t see the people you’re dealing with, check with the Federal Deposit Insurance Corp. before putting your money in one of these banks.

Search for the institution on the FDIC Web site, www.fdic.gov. On the home page, click on Deposit Insurance, then Is My Bank Insured? Type in the official name, city and state of the bank, and click on Find My Institution.

If the bank does not appear on this list, contact the FDIC at its Division of Compliance and Consumer Affairs, 800-934-3342.

Here are some other tips to a safer online banking relationship, according to the FDIC:

  • Read before you bank. Look for the About Us section on the bank’s Web site. This is where you will find the official name of the bank, the address of the bank’s headquarters and whether it is insured by the FDIC.

  • Don’t be fooled by copycat Web sites. The FDIC warns that there are a lot of crooks who create Web sites similar to ones used by legitimate banks. The site might even display the FDIC logo (that’s why you should check the FDIC’s site to be sure). Before divulging any personal information, give the bank’s customer service center a call. And double check to make sure you have the correct Web address.

  • Pay attention to the bank’s information about secured transactions. I know this information can be hard to understand, but you’re mostly looking for assurances that your private information will be encrypted.

    Better rates and lower fees are some of the biggest selling points for Internet-only banks. Because these institutions don’t have branches, their overhead is lower than a traditional bank, and they often pass the savings on to their customers.

    However, as traditional banks increase their online banking activity, they have become more competitive. So Internet-only banks don’t always have the best rates. That means you should still shop around.

    Even if a virtual bank doesn’t offer the highest yield, compare fees and account requirements. This can still result in a better deal than that offered by a traditional bank.

    For example, this month Chicago-based Corus Bank (a brick-and-mortar bank) had the nation’s best one-year CD annual yield of 2.27 percent, according to a survey by Bankrate.com. But you had to make a minimum deposit of $10,000.

    At the same time, Bank of the Internet USA was offering 2.21 percent — the fourth best rate in the Bankrate.com’s survey — and you only needed a $1,000 minimum deposit.

    Virtual banks do have some disadvantages. Chief among the problems is the lack of ATMs. To compensate, many Internet-only banks don’t charge ATM fees. Nonetheless, you’ll have to use the ATMs of other banks to get to your cash, and that generally means paying those banks for the use of their ATMs. To make up for this, some Internet-only banks reimburse customers for a maximum number of ATM fees or usage. Others are building up their ATM networks.

    In the case of E-Trade Bank, both are happening. E-Trade reimburses its customers when they use ATMs by other institutions up to $1.50 per transaction for a total of $6 or four transactions per month, whichever comes first. E-Trade also has a network of more than 15,000 ATMs. And if you go to its Internet site, https://bankus.etrade.com, you can search online for one of their ATMs nearest you.

    Overall, banking in cyberspace doesn’t have to be scary if you do your homework. Maybe no one will know you personally, but you also don’t have to dress up — or even get dressed — to go banking.

    (c) Washington Post

    Writers Group

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