The Changelog

Back in mid-2000, I set up my first Internet bank account. I have been using the same bank ever since. The whole notion of Internet banks has changed a lot since then, since virtually every bank offers varying degrees of online access these days. Lately I checked on banks to see if I was still using the best one. Here are my reviews of the two banks.

Internet Banks

Let's first talk about what makes a bank an "Internet bank" or "online bank". So many banks let you manage your account online now, that the distinction is blurry. But generally, I would say that unique features of Internet banks are:

• Significantly higher interest rates than traditional banks
• Ability to open an account online or by mail, and perform all banking functions without visiting the bank in person
• Free bill payment services
• Free self-initiated electronic transfers from your other bank accounts
• Immediate, real-time posting of transactions
• Your own bank never imposes a fee for using an ATM card at another bank's ATM
• Web access to account info, history, canceled check images, and statements
• Toll-free number for account basics (balance, transfer between your accounts at the bank, etc) over the phone
• Great telephone customer support
• An absence of outlandish fees

There are a few to highlight.

Real-time transaction posting is a great thing to have. If you go to the website and transfer money from your savings to your checking account, you can go to the ATM *now* and withdraw it, and when you get back to your desk, the ATM transaction shows up. There are none of these confusing "business day" rules with cutoff times that traditional banks seem to love. And none of this annoying "process all withdrawals first" business that large traditional banks (hello, Bank of America) love to do in order to screw with customers.

High interest rates. Don't even bother with an online bank if the savings interest rate is less than 3% (or checking less than 1%, in my opinion). It is almost impossible to find a traditional bank with these rates.

Note: if you're reading this after April, 2007, these guidelines may no longer apply due to interest rate changes.

Electronic transfers from other banks. Another great feature. A number of banks let you set up, and then initiate, electronic transfers to and from your accounts at other banks. This is usually free if you are using the feature to transfer money into your account, and with a flat per-transaction fee (usually about the same as a foreign ATM fee) for transferring money out.

Ability to do all business without visiting a branch. Not only should this be possible, but routine business (such as making deposits) should be easy to do without visiting a branch. You should be able to order new checks online.

Now let's look at the individual banks.

First Internet Bank of Indiana

FirstIB (they provide nationwide service, despite the name) is the bank I signed up with in 2000. I had found a bank in Dallas that I really liked, but when I moved to Indianapolis, I tried two and liked neither. They all seemed to have really poor interest rates, offer few useful services, and fees for so many conditions that it was hard to avoid them. (More on that in the traditional banks section below)

I looked at the online banking scene at the time, and wound up opening a checking and savings account with FirstIB. FirstIB started as an online-only bank, but recently acquired a bricks-and-mortar bank as well.

I found FirstIB's customer service at the time to be top-notch; I would dial their toll-free number, select *one* option from a menu, and a rep would answer *immediately*. (Take that, Bank of America, with your 45-minute hold times...) Since FirstIB was based in Indianapolis, I actually visited their offices a couple of times. They had a locked lobby. You picked up a phone, pressed 0, and went into the same queue that callers to the 800 number did, then just asked them to come to the lobby and transact your business. (They would not give out cash there, but could take new account paperwork and deposits and the like)

Their interest rates have consistently outperformed traditional banks, and they offer all the online banking amenities listed above. They did not offer online statements at first, but these days online statements are the norm (there is a fee if you want paper statements). Check ordering is accomplished using a linking with the Deluxe check printers. The web interface uses Digital Insight, and the ACH transfer interface uses CashEdge.

FirstIB will actually reimburse you, at the end of the month, for ATM fees that other banks charge you, up to $6/mo. They also provide an unlimited supply of free postage-paid deposit envelopes, and have a PDF of deposit slips that you can print out should you run out.

FirstIB's customer service has slipped in recent times. I know of some people that have been impacted by some errors that FirstIB has made (simply not processing paperwork that they should have processed). Wait times have gone up for the phone line, and a lot of the great "small bank" feel (where they actually knew their customers, and you might actually know the reps) is gone.

Presidential Bank, FSB

Presidential Bank is the bank I'm looking at now. I was initially drawn to them by their extraordinarly high interest rates (5.25% for savings!), but some other things have convinced me to use them.

Initially, I was suspicious. Presidential is a bricks-and-mortar operation that has been around for awhile, and was one of the very first Internet banks. Their website says that they started offering Internet accounts in 1995, and very much looks like it hasn't been updated since. (Thankfully, the account management interface is more modern). I almost thought the site was a fraud up front, a "too good to be true" deal with the high interest rates and bad-looking website. But after doing some research, realized that it is quite real.

Before setting up accounts with them, I had a few questions (such as whether or not transactions post in real time). Presidential has a simple email address for people that want to send in questions (unlike FirstIB's obvious queue system). I sent an email, and got a response an hour or two later, from a real person with a first and last name, and a personal e-mail address I could use to follow up. Nice. I also had occasion to talk to people on the phone. They were polite, speedy, and helpful.

So I set up my accounts with them. I activated the online access, bill payment, and money transfer features. All worked as expected. I did have a couple more occasions to call them after the account was set up (a more crucial test than the pre-account calls), and they remained helpful. Strangely, this bank, which seems to be a much larger operation than FirstIB, had a more small bank feel. Several times, as I started talking to a rep, he or she would say something like "Oh, I remember processing the setup paperwork on this account last week" or "I think I talked to you about this before?"

Customer service is one of those things you rarely need after the first month or so of an account. But with your bank, it is vital that the reps know what they are doing and are willing to help you when you call -- which Presidential is doing better than FirstIB these days.

Presidential does not rebate ATM fees like FirstIB does. They do provide a few deposit envelopes with your initial account setup packet, but they are not postage paid or unlimited. However, because Presidential's interest rates are so much better than FirstIB's, it doesn't take much in your account to more than balance out that difference. Plus, with so many retail stores offering "cash back" when you use an ATM or debit card, it isn't too bad to get cash for free with Presidential. (And, most employers offer direct deposit, so we rarely use deposit-by-mail) One other trick is to find some local bank and open a no-minimum free checking account with them. You can deposit checks there and withdraw cash from their ATM, and use Presidential's free incoming ACH to electronically transfer the funds to Presidential when you get too much in the local account. (Chances are that these local accounts will not pay any interest)

Presidential offers a few features FirstIB does not. First, they scan all your deposits (not just your canceled checks) and offer to let you view them online. Secondly, they automatically send you an email when they've received a bank-by-mail deposit (you can opt out of that, of course). Third, they let you view *all* of your old statements online (FirstIB only lets you view the last 6 months worth, though both have the complete history available in the web interface).

Like FirstIB, Presidential uses DigitalInsight for the web interface and CashEdge for the ACH feature.

Internet Bank Comparison Both banks offer two primary checking and two primary savings accounts. This table compares all four accounts.

Feature	Checking				Savings
	FirstIB		Presidential		FirstIB		Presidential
Account	Interest	Free	Internet Plus	Internet	Money Mkt	Reg	Premier	Internet
APY	1.26%	0%	4.50%	1.25%	3.90%	2.75%	5.25%	1.50-2.50%
Min Balance	$500	$0	$1000	$500	$4000	$1000	$0	$100
Min Method	Avg Daily		Daily		Avg Daily		Daily
Min to Open	$100	$25	$1500	$500	$100	$100	$5000	$100
Online Bill Pay	$0	$4.95/mo	$0	$5.95/mo (up to 10 payments)	Not available
ATM surchage rebate	$6	$0	$0		$0
Online Canceled Check Images	Free				N/A
Online Deposit Images	No		Free		No		Free
Email Deposit Notifications	No		Free		No		Free
Email Balance Alerts	Free
ACH policy	Free when initiated at other end; free for deposits when initiated at the bank's website; small fee for withdrawals when initiated at bank's website

Online options at traditional banks

As I mentioned, Presidential is a traditional bank that has offered Internet accounts for some time now. Some other traditional banks do that as well, but look carefully at them, especially if they're a big nationwide bank.

I looked at options from Bank of America, Citibank, HSBC USA, ETrade Bank, and some other large national banks. In general, these were just regular bank accounts with a web interface (HSBC and ETrade being somewhat of exceptions). Read the fine print and you'll find poor interest rates and traditional banking hassles (lack of immediacy in transactions, predatory posting practices, fees for just about everything).

Plus I can tell from personal experience that Bank of America customer service is downright awful. One example: they used to pressure me to open a credit card with them every time I visited a branch. I declined every time, and had to be forceful about it sometimes. Then one day, not long after a visit with a particularly annoying employee, I got a Bank of America credit card -- which I had specifically refused -- in the mail. Hmmmmmm.

They also, unlike any other bank I've ever used, charged a fee to receive wire transfers. Which they had not disclosed. Then, of course, they apply withdrawals before deposits, and caused an overdraft from the undisclosed fee, even though the wire transfer was a *deposit* that would have very easily covered it. That was the last straw for me. After nearly an hour on the phone with them, I got them to agree to reverse both the fee and the overdraft charge. THEN I said I wanted to close my account.

When traditional banks are better

There are a few situations where Internet banks don't work out so well:

Living paycheck to paycheck. If you are constantly running out of money, and it is vital that any deposits get posted *NOW*, you probably don't want an Internet bank (and wouldn't benefit from their higher interest anyway). When you mail in a check, it can take some time before you have access to the money; the postal service has to deliver it, and then most of your checks will be subject to the "non-local" availability policy and held for about a week (though interest will start to accrue immediately).

Not being able to meet minimum balances. Internet banks do tend to offer a variety of accounts, but if you aren't able to regularly maintain $500 to $1000 in your checking account or $2000 to $5000 in your savings, you will likely fall into a category with lower interest and fewer free benefits. These accounts may not have many benefits over traditional banks, and may in fact be worse in some ways. The interest rate gap won't make that much of a difference either. There are several online banks that offer savings accounts only, with high interest rates and low minimums, that you may want to investigate -- though you will have availability into your checking account measured in days, not seconds. Presidential's savings has no minimum, but requires $5000 to open. (They do have lower-interest savings accounts without that requirement) Watch out for FirstIB's accounts; you can open an account with less than the monthly minimum balance, and will run into fees unless you deposit enough to meet the minimums.