Online Checking Pays You More

Now that more people are signing up for online savings accounts that pay high interest rates, Web-based banks are going after your checking-account business, too. The banks are offering interest-bearing accounts that beat the rates at traditional banks by a mile.

Interest-bearing accounts exist in the non-Web world, but they're a terrible deal. In 2006, the average yield at a brick-and-mortar bank was 0.34%, compared with 2.25% at an online bank, according to a survey by Bankrate.com. And fees averaged $10.74 each month, compared with just $4.31 online.

FreeNet checking from EverBank comes as close to a traditional checking account as you'll find. The bank sends you a debit card and a checkbook, and reimburses you up to $6 a month for ATM fees. Plus, you earn a yield ranging from 3.41% to 5.01%, depending on your account balance.

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The minimum balance is $1,500, and bill-paying is free as long as you maintain that level (drop below it and you'll pay $4.95 a month). Opening an account is easy: Mail in an application and a check to fund the account. You can view your monthly statement online or receive it by mail.

ING Direct's Electric Orange account shakes things up a bit more. For one thing, ING does not send a checkbook; its checks are issued electronically. You enter the payee's information, and ING sends an e-mail directing the payee to a secure site to approve the transfer. You can also fill out the check online for ING to mail the next day.

You get a debit card, but ATM access is tricky. ING is on the Allpoint system, which means the only free ATMs are located in convenience stores and other retailers. Bill-paying is free, and the account has no fees unless you request a special service, such as stopping a payment. You do your banking completely online -- from opening your account to viewing your statement. Interest rates range from 4% to 5.3%, depending on your balance, and there is no required minimum balance.

More options for direct banking are on the way. HSBC Direct and E-Loan say they plan to bring similar accounts to market later this year.

With high yields and low fees, Internet checking accounts are attractive. But they're not for everyone. If you are often paid in cash, for example, online checking isn't for you. And, says Bankrate.com's Greg McBride, an online checking account shouldn't replace your online savings account. "Yields on checking accounts are attractive but still come up short compared with savings accounts."