Banks without bricks: Services on the Internet can save you money on fees

Few things are as distasteful as banking fees. <br><br>You give your money to a bank, and then the bank charges you while they enjoy the privileges of having your money. Now there's a way to get rid

Monday, March 20th 2000, 12:00 am

By: News On 6

Few things are as distasteful as banking fees.

You give your money to a bank, and then the bank charges you while they enjoy the privileges of having your money. Now there's a way to get rid of many of those fees: switch to an Internet bank, a new type of financial services company that you access only by computer.

These new banks don't have any branches, and therefore don't have the overhead costs of their traditional counterparts, such as rent and teller salaries.

There are about 25 such Internet-only banks, according to Online Banking Report, and there are more starting up all the time. So far, they have few customers compared with their brick-and-mortar rivals.

So to get customers, many Internet-only banks offer lots of incentives, and the key one is no fees.

Most of these cyber-banks let you set up a checking account, and give you the ability to pay your bills electronically, for free.

Many provide the same kinds of services offered at regular banks, such as overdraft protection, certified check-ordering and CD accounts.

But there are a number of drawbacks as well, including the most obvious one: there's no branch to walk into if you have a problem with your account. More on that later.

The main reason to switch to an Internet-only bank is to save money in fees, and in some cases, to earn interest. For example, Security First Network Bank, headquartered in Atlanta, has a no-fee account that pays 6 percent interest, and offers 35 free bill payments a month. That means if you have an average of $1,000 in your account for over a year, SFNB not only won't charge you, it will pay you $60.

By contrast, a "classic" checking account at BankBoston is $6 a month, plus $4.50 a month for electronic bill payments, a total of $10.50 a month. Over the course of a year, that will cost you $126. (BankBoston branches in Rhode Island are about to become Sovereign, which may have different rates.)

But switching to an Internet-only bank is not a slam-dunk. There's a lot you may give up, starting with in-person customer service. If you like the idea of talking to a human and being able to sort out a mixup with an account in person, than Internet banks are probably not for you.

But if you have direct deposit and mostly use ATMs anyway, this might not be a big issue.

Most Internet-only banks offer customer
service by a toll-free number, and by e-mail.

Jim Bruene, editor of the Online Banking Report, warns that customer service at some Internet banks may not be up to the level of traditional banks.

"A lot of these banks are really new, in high-growth mode," he said. "When you have high growth and are new, sometimes you have service problems."

Another big drawback is that Internet-only banks usually don't own ATMs. That means you'll probably pay a fee, perhaps $1.50, each time you use another bank's ATM to withdraw money. Some Internet-only banks will reimburse you up to $5 or $6 a month for these ATM fees.

But that might mean limiting how often you use the machines to avoid fees. And you usually can't make deposits with an ATM -- you'll have to send a deposit through the mail, or set up direct deposit.

While many Internet banks don't charge fees for a basic checking account, they can wallop you with other fees. For example, if you need overdraft protection at telebank, based in Arlington, Va., it will cost you $15 each time money is automatically transferred from another account you must maintain, in order to make up for a shortfall in your checking account.

http://www.wingspanbank.com/WingspanBank.com of Wilmington, Del. offers a five-day, no-interest grace period on a line of credit used for overdraft protection. But after that, you are hit with an interest rate of 19.99 percent.

Any many Internet banks don't return your checks. Instead, you view canceled checks online. NetBank of Atlanta charges $5 just to get a copy of a canceled check.

So how do you pick out an Internet bank? The Internet is the best research tool. Online Banking Reports (www.onlinebankingreports.com) has a database of all banks that offer Internet banking and their Web addresses. The site lets you search for Internet-only banks too.

Gomez Advisors (www.gomez.com), a consumer research site, reviews and ranks many online banks. The site also has promotions where visitors can get money back for opening an online bank account.

Epinions.com has a number reviews and recommendations of Internet banks by regular customers.

SmartMoney magazine (www.smartmoney.com) just completed its third annual evaluation of online banks, which includes rating Internet banks and traditional banks that have online products.

If you're tired of paying bank fees, and you're willing to do a little research, you can probably find a better deal with an Internet bank. But beware of what you give up by dealing with a bank you can't see.

Timothy C. Barmann covers technology for The Journal. His column runs every other week on the More For Your Money page. Send him comments via e-mail at tim@cybertalk.com or U.S. mail, c/o The Providence Journal, 75 Fountain St., Providence, R.I. 02902.