Cash In

You're being mugged. Online or off, banks have become two-bit stick-up artists with the fees they charge, the interest they pay, and the meager service they now offer.

A study by Bankrate.com released in March confirms it. Interest yields for checking accounts across the industry continue to sink—to the current average of 1.2 percent, which is well below inflation. Many banks pay nothing at all. Minimum opening deposits keep climbing. So do minimum balances. And monthly service fees persist in their upward spiral. The average bounced check now costs you $24.45.

Meanwhile, hidden fees—for writing more than a preset number of checks every month, doing your banking with a live teller, and paying bills online—are jimmied into every crag of banking service imaginable. Today fees average $10.77 a month. It's widely accepted that you'll pay a fee for using another bank's ATM—an average of $1.44. And Bank of America even charges certain customers $2 to transact with a teller.

Things are only getting worse. Jupiter Media Metrix reports that four times as many bank CEOs plan to increase the number of wireless and online offerings over the next year as plan to improve customer service or the usability of their Web sites. The more ways to gouge you, the fatter the bottom line.

Wasn't the Internet supposed to foil banker banditry? New competition promised cheaper fees, higher yields, and a new world of improved convenience. What happened to the online banking revolution?

In fact, Web banks outshine their bricks-and-branches competitors in the area of fees and yields. But usability is another matter. The Ziff Davis Smart Business Labs put eight online institutions to the test, with less than spectacular results. Despite the industry's enormous investment in Internet banking, there's a lot of room for improvement.

Tell Your Teller

The distinction continues to blur between pure-play Web banks and conventional institutions. Among the traditional banks we tested, Bank of America and Wells Fargo have moved most aggressively onto the Internet. Each has more than 3 million of its customers banking online. Meanwhile, E*Trade recently opened retail fronts to sell investment services—but not banking—at a SuperTarget store in suburban Atlanta, with plans to open 20 more. It's a trend many online banks will follow. Retail space, not surprisingly, makes it easier to sell customers new services.

Net banks have also begun to follow their stodgy elders in fees. In its semiannual pricing survey, Bankrate.com found that yields on Net accounts dropped while monthly charges and minimum-balance requirements shot up. Why? Web banks are trying to weed out their least profitable customers.

Should you switch to an e-bank? In terms of costs, the Web is still the better bargain. Interest paid on Internet checking accounts averaged 3.8 percent—triple the average paid by a local branch. In general, Net banks are more likely to pay interest. Some 86 percent of online banks give you something for your deposit, compared with 43 percent for the industry as a whole. Monthly maintenance fees, which average $5.25, are also less than half the industry average. And you can avoid those fees by keeping up an average balance of $831 compared with $2,338 for brick-and-mortar accounts.

So why haven't more people dumped local branches for Web accounts? Traditional banks have fared far better ushering customers online than pure-play Net banks. A recent study from research firm TowerGroup shows that some 92 percent of Americans still prefer bank branches, despite their enthusiasm for the Internet. Free ATMs are part of the reason. E*Trade Bank has a network of more than 10,000 ATMs nationwide, but most online-only banks don't, which means you're likely to pay as much as $2 every time you use another bank's cash machine. Bankrate.com financial analyst Greg McBride says he believes that customers also seek the security of a branch. "They want the option of talking to a person if a problem arises," he says.

Dazed and Confused

If our tests prove anything, it's that problems will indeed arise. Our testers—businesspeople who use the Web to manage their finances—found all online banks tricky to navigate. Sure, routine chores, such as moving money between accounts or viewing balances, were easy enough. But should you lose an ATM card or need to stop payment on a check, help is much harder to find.

Most astounding was many sites' amateurish quality. Crucial data—current interest rates for loans, support phone numbers, types of available accounts—displayed on a site's home page is often unavailable once you log into your account. Some banks make it impossible to search the site by keyword. And help buttons often disappear when you most need them.

Some sites are riddled with typos and misspellings; others harbor dead links and HTML errors—none of which instills great confidence in the institution's quality control. And while all banks post privacy statements, few give specifics on security precautions.

Many of these problems would be forgivable if online banking offered all-in-one convenience. Aside from shuffling money between accounts, paying bills, and checking balances, testers found little incentive to leave their local branches.

Of course, cold, hard cash may change your mind. And this remains the chief draw for pure-play Net banks—in reduced fees and higher yields. But before you bite, consider which institution's site is easiest to use. While there was no runaway winner in our tests, Wells Fargo offers the best bet for bricks-and-branches and BankDirect took top honors among pure-play Web banks.

Wells Fargo's site puts all its financial services close at hand. Loans and insurance are easy to find. You can order cashier's or traveler's checks. The site provides wireless access and points you to talking ATMs—machines that tell users such as the vision-impaired how to perform various transactions. All these features are surprisingly easy to find and use. And information is abundant.

Search results could be better displayed, however. And testers didn't like the way the account screen toolbar disappears as soon as you start scrolling. These are trifles. For full-service banking—online and off—Wells Fargo should be your choice if you live in the western United States.

Like Wells Fargo, Bank of America—available nationwide—provides a wealth of services, including a smorgasbord of checking accounts, wireless access, and an ATM locator. You can learn about loans, even though you won't be able to apply for them. The site's main features are relatively well organized and easy to use. Explanations are clear. Graphics are useful without being excessive.

BofA's FindIt button is a great idea, but the site desperately needs a keyword search. And it hides some of its best features and makes it difficult to locate basic info such as interest rates and monthly fees.

Works in Progress

Navigation is fairly straightforward at BankDirect. Then again, the limited number of services it offers keeps it simple. The online bank makes reaching customer service a snap. Testers also gave it high marks for its extensive security information. BankDirect's obvious push to protect customer information is enough to bring any Web bank skeptic off the fence.

That said, the interface could use some refinement. For example, instead of using menus to redirect yourself, you must use the Back button. The site also comes up short on credit card and loan searches. And the four-time monthly limit for using an ATM for free seems stingy. But low fees, relatively high interest, and top-notch usability should put BankDirect on your shortlist.

Everbank deserves credit for its high interest rates. But its interface is a little rough—icons are confusing and the Help tool is decidedly unhelpful. At least you can reach a service rep around the clock.

Wachovia is one of the few banks that lets you view canceled checks online. The screens for account information are pleasingly uncluttered. But testers found some features, such as the ATM locator and fee schedule, difficult to track down.

Charter One Bank does a solid job with page design. Especially pleasing are the drop-down menus, which are useful for quickly spotting key data. It was the only bank we tested with free checking, which means you won't have to worry about dipping below a minimum balance. Detailed items like ATM finders and customer service contacts, however, are difficult to locate. A search engine would help.

If you buy and sell stocks through E*Trade, banking from the site is oh-so-easy, thanks to the elegant integration of accounts. But everyone else is likely to find that navigation is clumsy and information is difficult to reach. Simple chores—like reordering checks—are a pain.

Bank One puts privacy information and interest rates at your fingertips. Basic tasks such as transferring funds between accounts, reordering checks, or viewing balances are straightforward. But even slightly complicated chores, such as setting up a joint account or reaching customer service, are another matter. You might not be able to tell, but Bank One does offer abundant features, many of which target business owners. Its small business section is chock full of commonly used business applications and analytics that reveal how your company stacks up against the competition. A cleaner interface would make its features more accessible—and make using Bank One much more appealing.

Is It Safer Than a Cracker Box?

Your Web bank becomes another casualty of the dot-com meltdown. Do you lose your money?

As with any other bank, backing from the Federal Deposit Insurance Corporation ensures that you'll get back every penny you deposit—as much as $100,000—should your bank go under. The FDIC is the first place to visit before you open an online account: Call (877) 275-3342 or go to www.fdic.gov to investigate your Net bank.

Bank-rating organizations like Veribanc or BauerFinancial provide information about an online bank's financial health—its level of capital reserves or profitability. Veribanc charges $10 for the first rating and $5 for each subsequent report. Bauer provides free ratings of a bank's solvency and quality of service, among other criteria, at www.bankstars.com.

And if you'd like to know how your bank's fees and interest rates stack up to those of other banks, Gomez.com compares banks based on a number of factors, including customer confidence, site features, and cost. And Bankrate.com provides a semiannual survey of banks to determine the best—and worst—Web deals going.

Secret Weapons: Top Online Banking Services

Online banks generally have a lot to offer. Check here to find the features you need.

Bank Interest Paid Minimum Balance Pros Cons Verdict Bank of America (800) 678-2632 $8.50 per month* none $1,000 Lots of accounts to meet your needs; smart design; ATMs and branches nationwide. Gouging fees; low yield; crucial information sometimes hidden. A good choice if you're willing to pay—a lot—for convenience. BankDirect (877) 839-2737 $15 per month 2.75% $2,500** Painless navigation; customer service on tap. Only four free visits to ATMs each month; steep fees. As pure-play Web banks go, this is the best of breed. Wells Fargo (800) 956-4442 $8 per month* none $1,000 Abundant accounts— easy to swap dough between them; well organized; lots of local branches and ATMs. What, no interest? And information should be easier to find. Best combination of offline and online branches for banking. Charter One Bank (877) 242-7837 Free none none ($50 to open an account) Design makes it easy to get in and out; wide selection of accounts; free checking. Information can be spotty. A great choice for frugal and simple banking needs. E*Trade Bank (800) 382-2651 $5 per month 3.15% $1,000** High interest rates, low fees; excellent integration with investing tools. Unnecessarily complicated interface for those who only want to bank. A brokerage that moonlights as a bank. Everbank (888) 882-3832 $4.95 per month 4.01% $1,500** High interest and relatively low fees. Interface could use some refinement, especially the help feature. Great rates—if you can navigate the site. Wachovia (800) 922-4684 $12 per month 0.4% $700 Lets you view canceled checks online. Information—fees and payments—hard to find; tech support not up to par. A work in progress. Bank One (800) 482-3675 $5 per month none $500 Straightforward navigation for simple banking tasks. Inadequate customer service; information inaccessible. Adequate services for small to medium-size businesses. *Free with direct deposit.  **To avoid fees. RATINGS Excellent Good Fair Poor Unacceptable

Web Exclusive: Lose the Wire? Not So Fast

Wireless banking is off to a slow start in the United States.

On an airplane to Istanbul you realize you forgot to pay your credit card bill. The lending limit is maxed. Once you've landed, you pull out your Web phone and connect to the bank's site, and your bank makes the payment on the spot. You won't have to sell your shirt for dinner, after all.

Among the Web banks we tested, Charter One Bank, E*Trade Bank, Wachovia, and Wells Fargo offer wireless banking over the Web. Bank of America lets you check account balances using a Palm VII. But in general, wireless banking has been a slow starter in the United States.

A study from TowerGroup, a Boston-based research and consulting firm, shows that only about 400,000 North Americans use wireless technologies for financial services, compared with some 3.9 million in Western Europe and 4.8 million in Asia. Why the lack of enthusiasm stateside?

Blame the usual suspects: low bandwidth, a perceived lack of security, and a confusing array of networks and services. "In North America there are no uniform networks, like GSM," explains Isabella Fonseca, an analyst with Boston-based Celent Communications. "Users must partner with various wireless carriers and services [for roaming outside designated areas]. The technology isn't really available here."

Even skeptics believe the United States is poised to change. Fonseca says she believes the number of Americans using wireless technologies for financial services will grow by some 25 percent per year. TowerGroup is even more optimistic. It predicts some 35 million North Americans will be registered for wireless financial services by 2005.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Ziff Davis Smart Business.