How to Choose the Right Online Bank

NEW YORK (MainStreet) — BankingMyWay shows, on a regular basis, that online banks’ interest rates are as good, if not better, than traditional bank rates. That’s not a big surprise – online banks don’t have the overhead of old-school financial institutions, and can use that leverage to offer higher rates.

But does that mean you should sign up for an online bank account? Maybe, but do your homework before make any commitments.

First, some good news on online savings accounts, at least relative to traditional savings accounts. BankingMyWay’s Weekly Savings Rate tracker posts the average bricks-and-mortar banks savings account at 0.163% this week. But if you go online, at web-based banks like Ally Bank or INGDirect (Stock Quote: ING), you can garner savings account rates at or above 1%.

You can also open an online savings account with very little capital. Many online banks offer accounts with low (even $1) minimum deposits. Most also come with no annual fees.

But higher rates and lower fees, as compelling as those benefits may be, don’t mean you should jump into an online savings account head first. Instead, ease in gently (and smartly) by following these key steps:

Check for security. One tried and true benefit of banking at a bricks-and-mortar financial institution is that your money is safe, secure, and sound. That’s not to say that online banks aren’t safe, but with the acceleration of Internet fraud in this day and age, checking any potential online bank’s security operations is a no-brainer.

Aim for an online bank that offers security that goes beyond the basic username and password system. You want a bank that offers PIN numbers, personal questions that need to be answered before access is granted, and other “personal” security customization practices. Also, do a quick Google search to check the online bank’s track record on identity theft. Has it been victimized before? Does it offer 100% fraud protection? Does it offer identity theft assistance if you are victimized by cyber-fraud?