Facing an increasingly competitive market, online banks are launching checking accounts with attractive rates to lure new consumers and hold onto the ones they already have.
Thus far, 2007 has been a “very aggressive” year for online banks, according to Serge Matta, senior vice president of comScore, a Web audience measurement firm. The online banks are offering more competitive rates in an effort to reverse a recent slowdown in growth.
Both ING Direct and E*Trade recently launched online checking accounts with high-yields. ING Direct's checking account, called the Electric Orange, offers a 4% annual yield, while E*Trade's checking account has annual yield of 3.25%.
ING Direct's online checking account, like its savings account, has no minimums, no fees, and is completely paperless. Instead of a checkbook, customers will be able to make electronic payments online or have ING Direct send out a check through first class mail.
Electric Orange customers can also elect to have a MasterCard-branded debit card issued for ATM withdrawals or debit payments. ATM withdrawals can be done for free if customers use the Allpoint Network, which has 32,000 ATMs in 50 states.
There are, of course, some disadvantages. The biggest is that ING Direct requires you to keep a checking account at your regular bank to facilitate cash and check deposits. Transferring money between those accounts can also take a couple of days to complete. Then there's the hassle factor of having to set up the new online account.
E*Trade's online checking doesn't require an account at a regular back, but it comes with other restrictions. Customers must keep a balance of $5,000 to receive the 3.25% yield; balances under $5,000 will earn only 0.5%.
Online checking accounts are nothing new. Banks like Citibank Direct, Washington Mutual and Capital One already offer checking accounts with their online savings accounts, although not with such high yields.