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Wall Street Journal Article on Online Banks


This article from the Wall Street Journal has some interesting tidbits on online banking even though most of it is known by those who follow online banks. We already know that many online banks have been competing with each other in offering the best yields. Some of the online banks mentioned by the article included ING Direct, HSBC, Citibank, KeyDirect, and EmigrantDirect.

How many people have accounts at an online bank? I would have suspected it would now be around 10%. But the article quoted a figure of only 2% to 3% of US households. As you would suspect, it is growing and is expected to double by end of the decade. Actually, I would guess it might double by the end of next year. However, I think issues of online security may keep people away.

The article also gives some interesting facts about the popular online banks. For those thinking about joining an online bank and are worried about its legitimacy, it always helps to see the online bank mentioned in the news.

ING Direct was launched in 2000 and is now the 28th largest bank. Emigrant Savings Bank more than doubled its deposits to more than $9 billion this year thanks to its online division, EmigrantDirect (see my post for more on EmigrantDirect).

But online banking hasn't always been a success. Bank One's Wingspan unit began in 1999 and never did well. It was folded back into Bank One.

I don't think the author of the article has done much banking with online banks. One of the cons she mentions about online banks is that customer deposits often need to be sent in my mail. This is not true for many of the online banks like ING Direct, EmigrantDirect, and HSBC. Instead of having to mail in deposits, you can link the savings accounts to one or more external checking accounts and tranfer money in and out online. This is done using the Automatic Clearing House system (ACH) and is typically free. For me the ability to transfer money online like this is critical for an online bank. Besides the slowness of the mail, I've had checks get lost in the mail and this creates a lot of hassle.