In bid to branch out, online banks offer checking accounts

An E-Trade office in California. E-Trade's Rob Shenk , senior vice president of retail strategy and customer experience, says, "Our long-term goal is maximizing longer relationships." (Damian Dovarganes/Associated Press)

Online banks are pushing further into their brick-and-mortar competitors' territory with new checking accounts that offer higher interest rates without fees.

Both ING Direct and E-Trade Financial Corp. launched new checking accounts this month, hoping to boost revenues by managing more of their customers' cash.

The companies are following a broader trend in which banks are increasingly encouraging customers to do all of their saving, borrowing, and investing in one place.

But online banks mostly built their business by offering high-interest savings accounts or low-cost stock trades while allowing consumers to keep their existing relationships with local banks. Now that many brick-and-mortar banks offer online savings accounts, the Internet banks need to diversify, and they're doing so with checking accounts.

"The problem is if you're a one-trick pony and it's a good pony , it's easy to duplicate," Adam Honore , a senior analyst at consulting firm Aite Group, said of Internet banks.

E-Trade launched its Max-Rate checking account, offering a 3.25 percent annual percentage yield on balances, provided account holders have a minimum of $5,000 in their checking accounts or $50,000 total with E-Trade.

Those with account balances smaller than $5,000 are charged a $15 monthly fee unless they sign up for direct deposit, and they get a 0.5 percent interest rate, in line with what traditional banks offer.

Interest rates on most checking accounts average 0.3 percent, said Greg McBride , senior financial analyst for Bankrate.com . Because most customers need checking accounts , banks can pay low or no rates and still expect to collect deposits, as well as make money with monthly fees and ATM charges.

E-Trade can for go those fees because it has no physical branches, said Rob Shenk , its senior vice president of retail strategy and customer experience.

It will never charge checking customers a fee for using their ATM cards at cash machines the company doesn't own and will even reimburse the fees that other banks charge for using their machines, he says.

Eating the fees is one of the clearest signals that E-Trade is shifting its strategy; if free cash withdrawals attract new customers, E-Trade can pitch them on its other services.

It even has a tool on its website that allows visitors to calculate how much they might be missing out on by having cash in a checking account, as opposed to in some other type of investment.

"If we were to acquire a checking account customer, we would certainly want them to see and get into other kinds of accounts. Our long-term goal is maximizing longer relationships and increasingly ones that have some kind of investment activities," Shenk said.

ING Direct launched its Electric Orange checking account , offering 4 percent interest on balances up to $50,000 and higher rates on larger balances. It doesn't waive ATM fees altogether but lists 32,000 ATMs on its website where transactions are free for its checking customers.

ING pioneered the high-yield online savings account in the United States in 2000 . Then, the company's pitch to consumers was that they could get a high return on their cash without severing their relationship with their primary bank.

Since then, ING has grown to offer certificates of deposit, mortgages, mutual funds, and now checking.

"We were able to build the business around what is considered a secondary account, but we'd like to be their primary bank," said John Owens , ING's director of marketing.

Keith Reed can be reached at reed@globe.com.