Personal Finance: Digital deposits
Monday, June 26th 2000, 12:00 am
By: News On 6
E-banking offers good rates, but it's not for everyone
Rick Furr had a 20-year relationship with a traditional bank in his native Virginia. In fact, the bank vice president was a former high school classmate.
But when he learned about the potential benefits of online banking and liked what Dallas-based BankDirect had to offer, it wasn't hard for him to move his money.
"One, I got better rates on my money, and two, I got better service," said Mr. Furr, the Dallas-based president of Professional Sports Management & Associates, a sports marketing firm. "I'm basically happy because I'm making so much more on my money."
Mr. Furr is one of thousands of Americans who have opened an online bank account in recent years, spurred by the nation's fascination with the Internet and the advantages that experts say cyberbanking can bring compared with traditional brick-and-mortar banks.
However, experts also caution that consumers need to ask themselves some crucial questions before taking the plunge into online banking:
How comfortable are you with computers and technology?
Banking online involves mastering basic computer skills, as well as knowing how to navigate the Internet. Online customers should know how to use a Web browser such as Netscape Navigator or Internet Explorer, and how to send and receive information over the Internet.
BankDirect officials acknowledge that online banking is a service best suited to a computer-savvy clientele.
"I'm not trying to convert every customer in the marketplace to an Internet-only bank today," said Scott Prince, president and chief operating officer of BankDirect. "We are aiming at the people who are comfortable with the technology."
Consumers must also understand that online banking involves dispatching intimate details of their finances over the Internet, although it's on a secure Web site.
Can you trust an Internet-only bank?
"The biggest thing that consumers have had to overcome when it comes to acclimating themselves to the idea of online banking is the security aspect," said Greg McBride, financial analyst at Bankrate.com, an online publication that provides consumers with information on interest rates and financial products.
It's understandable. Banking is one of the most deeply ingrained public trusts, and asking consumers to deviate from the old-fashioned way of banking is a lot to ask.
"People don't want to start a checking account at a place they're not familiar with," said Jim Bruene, editor and founder of the Online Banking Report. "You're asking me to give up all the stuff I have at my local bank and send money to a place I've never seen."
Lack of trust is one reason Internet-only banks haven't done as well as many had hoped, said Paul Jamieson, senior analyst for Internet banking and payment systems at Gomez Advisors in Lincoln, Mass., an online and e-commerce research firm.
"They have not met expectations," Mr. Jamieson said. "The consumers say, 'I'm not going to trade off trust, I'm not going to trade off physical convenience, I'm not going to trade off the idea that if my computer breaks, I don't have access to my funds.' "
One way to alleviate your doubts about the legitimacy of online banks is to check out Web sites that rate online banks, such as www.gomez.com and www.bankrate.com.
Another source is the Federal Deposit Insurance Corp. to see if an online bank has deposit insurance coverage. The agency's consumer hotline is at 1-800-934-3342.
Be sensitive to other things, said David Barr, FDIC spokesman. For example, an online bank should have a street address to send correspondence to, or a telephone number, he said.
A bank's Internet address can provide some clues about the bank, Mr. Barr said.
"It should be something like 'www.bankname.com,'" he said. "It shouldn't be a free Internet site like 'www.geocities.bankname.com.' That means that someone is using a Geocities-type site to create his own Web page. It doesn't mean that it's a bogus Internet bank, but it should raise some caution in people's minds."
Can you handle banking without a bank?
Because they have no branch offices or ATM machines, online banks require customers to adapt. Instead of tellers, for instance, they have toll-free telephone numbers that customers can call to reach bank representatives 24 hours a day, seven days a week. Many Internet banks will reimburse customers for fees they pay to use other "real" banks' ATMs, but consumers should ask what the limits are on those reimbursements.
As for depositing money to an account, many online banks enable customers to establish direct deposit transactions for paychecks, but other checks often must be sent to the bank by mail.
Will online banking be truly beneficial to you?
"Because of the medium, you can gain time savings and convenience, you can better manage your finances, become more knowledgeable about them and access a great deal of information that is not available through other mediums," Mr. Jamieson said.
Because Internet-only banks don't have physical branches and the costs to maintain them, "Internet-only banks offer accounts that beat traditional brick-and-mortar accounts hands-down," Bankrate.com says.
For example, a one-year certificate of deposit at BankDirect carried an annual percentage yield of 7.40 percent as of Friday, compared with a national average of 5.66 percent, according to BankDirect. The bank's higher rates are what attracted Mr. Furr, who said rates on his money market and checking accounts are almost 3 to 4 percentage points higher than at his Virginia bank.
"I was concerned that BankDirect was so high," he said. "I was saying this is just a marketing gimmick, but they've gone even higher."
Mr. Barr, the FDIC spokesman, said consumers should be wary of too much hype about interest rates.
"Internet banks say they can provide higher rates because they don't have expenses like a brick-and-mortar bank does," he said. "That is true to some extent, but you're not talking about interest rates that are 50 percent greater or twice as great than what you get at your local bank."
Many Internet-only banks also offer free bill-paying services.
"They provide you with all the bells and whistles at a very low cost or for free," Mr. McBride said. "The online services offered by traditional banks will charge you an average of $5 a month for bill-paying capabilities, but with the Internet-only banks, it's generally included with your standard Internet access for free."
It basically comes down to your lifestyle and comfort level.
"If it's important to you to go inside and shake somebody's hand, then online banking may not be the venue for you," said Jonathan Lack, executive vice president of marketing and strategic planning at Houston-based CompuBank, a virtual bank. "If you're working and don't have much time, then you're the perfect candidate for online banking."
Pamela Yip covers personal finance for The Dallas Morning News. If you have a story idea, e-mail her at email@example.com.