E-banking: Time to get even

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 per 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.

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.

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.

Navigations is failr 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.