When I was little, going to the bank was a big deal. My grandmother would always make sure she was dressed nice. 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 the bar customers acknowledged Norm in the "Cheers" sitcom. Everybody knew her name.
Today, automatic teller machines and online banking services make interface with a real 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 bricks-and-mortar branches.
There are a lot of folks who think like my grandmother. For example, here's a question from a Maryland reader. She wrote: "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?"
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. (FDIC) before putting your money in one of these banks.
You can search to see if the institution is federally insured by going to FDIC's Web site, www.fdic.gov. On the home page click on the link that says "Consumers." Then under the heading "Deposit Insurance" select "Is My Bank Insured?" Type in the official name, city and state of the bank, and click the "Find My Institution" button. If the bank does not appear on this list, contact the FDIC. For additional assistance about the legitimacy of an institution, call the FDIC's Division of Compliance and Consumer Affairs toll-free at (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, and address of the bank's headquarters and whether it's FDIC insured.
- Don't be fooled by copycat Web sites. The FDIC warns that there are a lot of crooks who create Web sites that look similar to ones 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 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 often the banks pass the savings on to 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 still should shop around.
Even if a virtual bank doesn't offer the highest yield, compare fees and account requirements. This still can result in a better deal than what's offered by a traditional bank.
For example, in late April Chicago-based Corus Bank (a bricks-and-mortar bank) had the nation's best one-year CD annual percentage yield of 2.27, according to a survey by Bankrate.com. But you had to make a minimum deposit of $10,000.
At the same time, the Bank of the Internet USA (a virtual bank) was offering 2.21 percent -- the fourth best rate in the Bankrate.com's survey -- and you only needed a $1,000 minimum deposit.