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Internet Banks

The expansion of the Internet has led to two related developments in banking:

  • Internet Banking, or Online Banking. Some traditional "bricks and mortar" banks that mainly do business through physical bank branches may give customers the ability to view activity and to enter transactions online. Most of the larger banks offer this option.
  • Internet Banks, or Online Banks. Additionally, a number of banks do business solely through the Internet. Without any physical branches to staff and maintain, they have much lower operating expenses than traditional banks. Accordingly, you should expect lower fees, higher interest rates on deposits, and lower rates on loans than at traditional banks.

Before doing business with an Internet-only bank:

  • Carefully review the "about us" (or equivalent) section of the bank's website. Look for information about coverage by FDIC insurance. Then, visit the FDIC's own website, www.fdic.gov, to verify that the bank is indeed insured. Look under "Deposit Insurance" then "Is My Bank Insured?" Also review the rules governing FDIC insurance here.
  • Review the bank's privacy policy. Do they promise to keep your information confidential? Will they blitz you with unwanted sales pitches, or sell your name and e-mail address to third parties? Will they respect your decision to opt out?
  • Be wary of fraudulent "spoof" websites that mimic those of legitimate traditional or Internet-only banks. Don't be fooled into divulging personal information to scam artists.
  • Review the bank's security procedures. When accessing account information and entering transactions, you must be on a secure site with encrypted transmission.

Once you have determined that the bank you're considering is a legitimate, FDIC-insured institution with reasonable privacy policies and security procedures, there are still some practical questions to answer:

  • How does it accept deposits? Setting up direct deposits of your pay should be no problem. But what about depositing checks or cash? Can you do this through ATMs near you? Are there any fees to do so? What happens if you find that your deposit was not properly credited?
  • How do you get your cash out? (Many Internet banks will electronically transfer your withdraw to your local bank overnight.) Can you get cash through ATMs near you? Are there any fees?

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