Online Bankers Comparison: Ally vs. ING vs. FNBO

[Ed. Note: This post takes into account only checking accounts at the following banks. It gives no opinion on other types of financial accounts.]

We've discussed what to look for in a checking account and, yesterday, what to do when prior to switching to online banking but we haven't examined any banks. What follows is a cursory overview of checking with three popular online banks. Each of these banks has free checking, free debit cards, and checking accounts which earn interest.

Ally

Ally, formerly GMAC, was elevated to its current position in the tumultuous years following the collapse of Lehman Brothers. It started as an offshoot of GMAC, offering only savings accounts. In time, Ally began to diversify - first offering CDs (Certificates of Deposit) and then Checking Accounts.

Ally gained notoriety early on thanks to its high interest rates (2% at a time when other banks were routinely offering less than 1%) and its bold advertising. While time has tempered Ally's interest rates (the current interest rate for checking accounts is 0.50%) Ally's commitment to customer service has endured.

Personally, we have an Ally account and have remained impressed by Ally's service. Phone calls are answered by customer service representatives, not answering machines. Emails are routinely answered within 10 minutes, not 24 hours. Instant messaging, Twitter, Facebook - all are available as means to contact customer service and ask for help. (Ed. Note: We don't recommend you use social media to discuss private financial matters).

The Good:

1. Ally's customer service is amazing. It's definitely the best in the business.
2. It's virtually impossible to get whacked with a charge of any sort (unless you make it a habit to overdraw your account.
3. 100% ATM Fee reimbursement.
4. Free checks.

The Bad:

1. Returns on investment are rapidly retreating. While we haven't tracked returns on Ally's checking accounts returns on Ally's savings accounts are down from 2% to 1.09%.
2. Returns on investment aren't as high as at other banks.

The Verdict:

1. Ally's customer service has proven impossible to beat but the rapid retreat of returns has us considering other options.

ING

ING is best known in Europe but has gained a lot of ground here in the United States. Much of the ground has probably been gained thanks to the various incentives ING offers. Currently, it's offering $50 to new account holders. [Ed. Note: If you'd like to switch to ING and support us at the same time you can shoot us an
email and we'll send you and invite].

ING has been a pretty consistent presence in the online bank game and makes it very easy to open new accounts once you already have an account with them. Instead of having to formally apply for a new account ING allows a checking account holder to open a savings account, for instance, with a couple of quick clicks. Most other online banks, in our experience, require you to fill out more paperwork if you want to open another account. ING seems to do that for you.

The Good:

1. It's super easy to access online services and ING has really built itself around it's online presence.
2. Fairly large ATM network.
3. They'll mail your checks for you.

The Bad:

1. The return on investment is pretty low - 0.25% since March 2010.
2. ING has a customer service plan on par with Bank of America.
3. We don't like the numerical pin sign-in

The Verdict:

1. ING is a mixed bag. It's ATM network is large but limited. Their customer service is awful but, thankfully, there's not much reason to deal with customer service. One of the cooler things about ING is that since they don't give you any checks they'll mail a check for you (for free) if you fill out the information and if you're mailing it to an ING customer they'll instantly transfer the funds.

FNBO (First National Bank of Omaha)

Since launching its online operation in 2006 FNBO has consistently had one of the highest rates of return of any online bank. While we don't have any direct experience with FNBO (yet) it made our list because it's currently offering an astounding 1.10% return on checking accounts. Whatever the country's largest privately held bank is doing it must be doing it right.

The Good:

1. A 1.10% return on investment.
2. 'MyDeals' delivering savings to you directly via debit card.

The Bad:

1. It's not clear whether failing to move money into/out of your account during a month period will result in you being assessed a fee.

The Verdict:

1. We found this gem "Please note: There is a $2.00 standard fee for 3 day ACH delivery or a $10.00 express delivery fee for next day transfers during our investigation of FNBO's "Pop Money" and it's not clear whether there might be some sort of hidden fee structure in place. Previously, FNBO partnered with Mint.com to deliver a better deal. We'd wait on this one.

Disclosure: We have accounts at both Ally and ING. ING offers financial incentives to those who invite new customers.

Checking Accounts

Since this is a blog about personal finance it only makes sense that we start out by examining the core of personal finance - checking accounts. A checking account is key for anyone interested in personal finance. It serves as the root of virtually all other financial transactions. While it's possible to avoid having a checking account (we'll discuss that in a later post) it's a pretty cumbersome thing to do.

Regarding checking accounts, there are a couple questions you should ask yourself right now:

1. Are you paying for your checking account?
2. Does your checking account pay you interest?

If you're paying for your checking account ditch it. We're serious. You're wasting money if you are paying for a checking account. Sure, the bank may claim that you're getting some benefit by paying for your checking account but that's probably a lie. In reality, all you're doing by paying for a checking account is wasting money.

If you're checking account isn't paying you interest you should also ditch it.

"Wait!" You say. "My bank offers interest checking but I have to pay for it. Does that mean I should ignore the previous paragraph?"

"No." We reply. "You should just ditch the whole dang bank."

Seriously, there are a ton of banks which offer interest checking for free. Sure, most of them are online but they're just as functional as your bank (sometimes more so). And, they pay you to hold your money, just like savings accounts, except usually at a slightly lower rate and without the 6 transaction restriction.

"Okay." You say. "But I don't know anything about online banks. What do I need to know before I decide to commit to one?"

There are six things you should look into before you decide to apply to an entirely online bank:

1. Do I get free checks?
2. Do I get a free debit card (also known as a 'check card')?
3. (Is the debit card a Visa, MasterCard, or (shudder) AmEx (American Express)?)
4. Does the bank reimburse ATM fees?
5. How does the ATM I'm going to use process fees?
6. How do I make deposits?

Presumably, you're going to need to write a check at some point. A bank like Ally (our favorite) offers free checks (50 at a time) while a bank like ING will mail checks for you but doesn't actually give you any real checks (mailing is free). Other banks don't offer any check service.

Most banks will offer a debit card for free. Why not? They love it when you spend money. The only problem will be what network your card is on. Most seem to favor Visa but MasterCard has a strong following. The difference between the two (so long as you stay in the USA) is insignificant. You'll want to be wary of banks offering AmEx cards. It's taken in fewer places than either Visa and MasterCard and it'd be embarrassing to be in a checkout line and discover that you can't because they won't take your card.

If the bank is like Ally it'll reimburse all your ATM fees. If the bank is like ING it'll have a certain 'free network.' Other banks don't reimburse any ATM fees.

Some ATMs (or, I should say, ATM networks) process fees strangely. Local banks, such as Lake Sunapee Bank (as we recently discovered to our chagrin), sometimes don't report the fee as separate from the transaction. Therefore, you won't be getting a reimbursement from any bank because your withdrawal will be reported as, say, $63.73 instead of $60.00 + (fee) $3.73. So, you're going to want to know how your local ATM is going to report fees. (Ed. Note: this last bit of advice applies to all banks, not just online only banks).

Finally, if the bank is online only you're going to want to know how to deposit checks you receive. Unfortunately, most have been rather slow to realize that most of us are loath to deposit a $100 check when we have to deduct the cost of a stamp. Thankfully, some banks (USAA and PenFed (Pentagon Federal Credit Union)) have realized that Deposit@Home is the way to go. Unfortunately, that's not common. But, some others (reportedly) offer to mail you pre-addressed pre-stamped envelopes. We're still waiting to confirm that, however.

Disclosure: Of the banks discussed above we have an interest in both Ally and ING. Our interest is limited to having accounts with both. (Note: If you'd like to open an account with ING you can send us an
email and we'll invite you. If ING accepts your application we are given a small financial incentive. Ally does not currently offer a similar offer).