10 steps to choose an online bank

A recent chart in american banker magazine pointed out that free checks at major banks are becoming scarce. As of 2009, 96% of banks with more than $ 50 billion in assets offered free checks; now that number has dropped to 34.6%.

The change has caused many people to consider moving to a smaller bank or credit union, where deposit accounts tend to have lower fees. But another option that should not be overlooked is online banking. Yes, it might seem odd to do banking with an institution that only exists in the virtual space, but if you already do a lot of your banking on your computer or mobile device, the change might not. be as shocking as expected.

(FOLLOWING: A Bank Account For Teens – It’s Tailor-Made For Helicopter Parents)

There are certainly some aspects of online banking that you should keep in mind if you are considering a change; among other things, some online banks do not offer basic products like branded ATMs or paper checks. In addition, there are other factors that you should consider when changing financial institutions, whether online or not, such as security and convenience.

Here are 10 steps to take before you jump into an online banking relationship:

1. Make sure the bank is FDIC insured? This seems like an obvious question and something you might take for granted if you walk into a branch to open a new account, but you want to make sure your money is protected if the bank goes bankrupt. Even if the site has the FDIC logo, go to the agency’s website website and check its compliance. “Name recognition shouldn’t be a factor as long as the bank is FDIC insured,” says Richard Barrington, personal finance analyst for Money Rates. “After all, some of the biggest names in banking had the biggest problems in 2008.”

2. Check the stability of the institution. Even if you are protected by FDIC insurance, you don’t want the hassle of seeing your bank go bankrupt. Find out the size of the bank’s asset base and how long it has been in business. If the bank is publicly traded, you can check its stock price and read its financial reports. While these attributes are not foolproof measures of financial stability, a very small or new institution may be more vulnerable to economic turmoil.

3. Look for a bank that has an ATM network or that reimburses off-network charges. Some online banks have a network of ATMs that customers can use free of charge; if they don’t, make sure that you will be reimbursed for the fees you incur when using the machines of other banks. Make sure there is either a very high cap or none. Some banks charge up to $ 5 for non-account holders, so you want to make sure you don’t face these kinds of fees. Make a checklist of other fees your financial institution is currently charging you for things like debit card use, monthly maintenance, etc., then compare them to what online banking offers. Online banks have lower overhead costs, so sometimes they can offer the kind of services that traditional banks increasingly charge for free.

4. Check the bank’s security record. If you’re going to do all of your banking online, you’ll need a bank that has high standards for customer passwords. The bank should ask you for backup authentication if you log in from another computer. Ideally, you’ll also want the option to receive alerts when transactions are made over a certain dollar amount or outside a particular geographic area, says Philip Blank, general manager of security, risk and fraud at Javelin Strategy & Research.

(GALLERY: 12 things you should stop buying now)

5. Find out what it takes to reach a live customer service representative. Since you can’t just walk into a branch and talk to a cashier, find out how quickly you can talk to someone if you have a question, lose your debit card, or have an issue with your account. The gold standard is 24/7 live service.

6. Ask yourself if you need paper checks. ING Direct recently started offering paper check books to customers, catching up with Ally Bank. Previously, customers had to order pre-made checks one at a time and wait to receive them by post. If you need to make regular payments by check to a merchant, service provider, or landlord, it’s probably in your best interest to stick with online banks that offer checkbooks.

7. If you receive funds by paper check rather than direct deposit, find out how the bank accepts them. Several online banks now allow customers to deposit checks by remote capture; that is, you take a photo of the check with your smartphone or scan it into your computer and the money is added to your account. Both are faster and much more convenient than having to mail a paper check and wait for it to be cleared.

8. Compare the rate you will get on your deposits. Because they have relatively low overheads, online banks often offer higher interest rates on deposits. But beware of teaser rates as well as rates that only apply to part of your balance or if you keep a large balance, Barrington warns.

9. Make a wish list of other benefits. Do you want to be able to make person-to-person payments? Do you want to do most of your banking through a mobile app? Much like their traditional counterparts, online banking offers vary widely, so you will need to determine which ones are important to you before signing up.

10. Take an inventory of the bank’s other products. Do they offer CDs? Money market accounts? Loans or Credit Cards? Unlike full-service physical institutions, the category of online banking is not as comprehensive, but a growing number is expanding into more areas and offering a wider range of financial services.