As consumers grow increasingly frustrated by the checking account options offered by traditional banks, more are seeking out the best online checking accounts for better interest rates and service. Large banks like Wells Fargo and Bank of America are continuing to add fees, such as debit card fees, and are not concerned with scaring the less profitable customers away. This is part of a larger plan to increase profitability, which includes firing the customers who don’t have large balances and sending them to online banks, small banks, and credit unions. If these customers remain unprofitable at their new institutions, those organizations may be forced to enact fees, as well.

Regardless of the larger situation, including industry-directed changes and regulations, the best thing a customer can do is find the best checking account that meets his or her needs at that particular time, with the information that is currently available. Here are my picks for stable, convenient online checking accounts.

Ally Bank. Ally Bank (formerly GMAC Bank) offers a checking account with no monthly fees and no minimum balance. The no-fee, no-minimum accounts are becoming increasingly rare, and even those banks that have held out with these accounts, very few offer interest on the accounts, as Ally Bank does.

PerkStreet. PerkStreet takes a unique approach to checking, offering cash back for using an associated debit card. Cash back in a world where other banks are charging to use their debit card is a novel idea. For now, customers with a PerkStreet account earn 2% cash back on all debit purchases and an additional 3% cash back, for a total of 5% cash back, on rotating categories throughout the year.

There are some limitations to this cash back; the 2% cash back is effective for the first 90 days or for accounts with at least a $5,000 balance. Otherwise, the cash back rate is 1%. The 5% offered on rotating categories expires after a customer ha earned $250 in cash back from that tier.

Perkstreet’s checking account is a finalist in its category for the 2nd Annual Plutus Awards.

ING Direct. The ING Direct “Electric Orange” online checking account has been my primary online checking account for almost as long as the account has been offered by the bank. To catch up with other online offerings, ING Direct recently began offering paper checks. Like Ally, this account charges no fees, requires no minimum balance, and offers interest to account holders. Rather than overdraft coverage from a linked savings account, the Electric Orange account takes advantage of a line of credit offered to approved customers.

FNBO Direct. FNBO Direct offers a savings account with a competitive interest rate, and the Online BillPay Account is a competitive offer as well. FNBO offers a high interest rate on their BillPay Account and integrates PopMoney, a system that allows you to easily transfer money to and from your friends (or anyone else who uses PopMoney).

I’ve had an FNBO Direct savings account for a long time, and it has consistently offered high rates.

USAA. USAA is taking advantage of banks charging $5 debit card fees, heavily advertising that their debit card is free to use. The USAA checking account is certainly a favorite among experts, earning its place as a finalist at the 2nd Annual Plutus Awards. USAA was also named one of CNN Money’s least evil banks.

The bank serves primarily members of the military, but membership is open to the public. The checking account has no fees and does not charge for up to the first 10 AM withdrawals each month. USAA also reimburses customers for up to $15 in ATM transactions each month, making any convenient location an “in-network” ATM. USAA also offers remote deposit, a convenient way to deposit checks into the account by scanning or taking a photograph of both sides of the check.

With the largest banks finding ways to eliminate the least profitable customers through the addition of fees, as of today, there are still plenty of options available for people who are interested in sticking with an institution that generates revenue in another manner. If the above options don’t work for you, there are credit unions that would be happy for an influx of customers. Every financial institution is a business, however, and if new customers end up being unprofitable in the future, free checking will become extinct.

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In early October, I will announce the winners of the Second Annual Plutus Awards, which will include the best bank, best credit card, best brokerage, and a number of other categories. Later today, the Plutus Awards website will list the finalists. Money Magazine has already completed its survey and announced the publication’s editor’s picks for best bank this year.

For an alternative to these selections, I’ve reviewed what I believe to be the best online savings accounts, looking past the antiquated notion that a physical branch is necessary for a good banking experience.

For the best national checking account, Money Magazine recommends U.S. Bank, citing the bank’s high customer satisfaction ranking in J.D. Power & Associates. With no branches in my region and one ATM within 100 miles, U.S. Bank is not an option for me. For checking accounts, I appreciate having not only nearby ATMs but convenient branches. Wells Fargo is not my favorite bank, and like other national banks they rely on increasing fees to maintain their profits, but I have a checking account there because the branches are ubiquitous. I prefer TD Bank, but a less professional website prevents me from keeping my primary checking accounts there.

Money Magazine picked the Discover Bank Online Savings Account for best savings account. It’s difficult to argue with this selection. Although I closed my Discover account to consolidate my savings, I had a positive experience with that bank, and the interest rates they have been offering have been solid. The rates have been higher than the online banking mainstay, ING Direct.

Ally Bank wins Money Magazine’s selection for best online package, thanks to great rates, unlimited ATM fee reimbursements, and remote check deposit. The magazine also mentions that Ally introduced a debit rewards program at the same time other banks are eliminating them. I expect this benefit to be short-lived, though. Ally Bank is a result of General Motors and its subsidiaries distancing themselves from the negative public image of the company. The rebranding worked so well that more GMAC departments eventually changed their names to Ally. Here’s my review of the Ally Bank Savings Account.

Money Magazine chose Alliant Credit Union for the best credit union category. Credit unions often have regional or local associations, making it hard to determine a best credit union relevant to all Americans. I’m a fan of moving away from large banks towards credit unions, but not everyone can qualify. I’ve searched, and it doesn’t appear that I can become a member of any credit union near me.

The survey also recognizes the best regional banks: Bank of the West in the west, Huntington in the mid-west and TD Bank in the east.

Overall, the above selections are good choices for best bank. I think it’s good that the formerly innovative ING Direct receives some serious competition in the online space. With ING’s large customer base, the company has little incentive to staying competitive. Executives know that most customers will not switch to other banks just to chase higher interest rates. The more other online banks can improve their services and offer compelling products, the more ING Direct will need to worry about staying competitive.

National banks, with their overzealous fees and impersonal customer service, should be concerned about losing business to regional and local banks, credit unions, and online banks that offer more convenient services like remote check deposit and ATM reimbursements.

Money Magazine

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Update: Capital One has purchased ING Direct.

A little less than eighteen months ago, I mentioned that ING Direct was scheduled to be sold off. The online bank’s parent company, ING Group, received taxpayer assistance. The plan is for ING Group to sell ING Direct USA to pay back the European Commission.

The New York Post reported today that Ally Bank is in talks to buy ING Direct USA, its major online savings account competitor, to expand its portfolio of deposits and offset Ally Financial’s portfolio of troubled assets. I’m a customer of both banks. Both are strong marketers; customers in the United States are familiar with ING’s orange ball and Ally’s amusing commercials.

What this sale might mean for customers

I’ve dealt with customer service with both banks and I have never felt frustrated or confused. I have never had a problem with my accounts at either bank, but I have used my accounts at ING Direct much more extensively than my accounts at Ally Bank. Both banks continue to offer very good interest rates for savings, though ING Direct is no longer at the top of this list. The loss of a major competitor means that we could see increased costs of doing business — possibly new fees — and less favorable interest rates for customers. I’d like to think that there is enough competition among high-yield savings accounts to keep these changes to a minimum, but whenever the market combines the top two competitors in an industry, customers need to consider their options.

Ally has worked hard with branding and marketing to disassociate itself with its troubled past parents, GMAC and General Motors. Ally Bank has, in the past, angered the American Banking Association by offering savings interest rates that were too high. The ABA sent a letter to Ally requesting the bank to lower rates so other banks could compete. Brick and mortar banks had to stop posting their interest rates online because their rates could not match what was being offered by low-overhead, online-only banks.

ING Direct has spent many years turning its customers into loyal fans. From the consumer’s perspective, being a fan of a company is dangerous because it can lead to ignoring flaws. Many customers who joined ING Direct years ago due to the bank’s high interest rates have stuck with the bank because they like the service and it would be inconvenient to switch. These are legitimate reasons to stay with a bank, but when it comes to financial decisions, customers can’t ignore the effect it has on a wallet. For someone who has enough money in the bank to earn $50 in interest a year, it might not make sense to switch to a new bank to earn $10 more dollars that year, but interest compounds over time, and the effect a higher interest rate has on a lifetime of savings can be substantial.

Rates are, of course, only one factor in choosing a savings account. Both Ally Bank and ING Direct have offered good to excellent interest rates and great customer service so far. At this point, with Ally Bank’s troubled heritage in the past, it’s safe to say that there is a possibility for good synergy as a result of this sale. But even the simplest acquisitions could end up hurting the consumer.

As of today, there is no definite declaration that Ally Bank will purchase ING Direct. The announcement is only that the two banks are in talks, and these types of announcements often exist only to gauge public (and particularly investor) reaction and sentiment. I think the new online bank formed with the deposits from Ally Bank and ING Direct would not qualify for “too big to fail” status, but the combined bank would be the leading online savings account in terms of volume of deposit accounts.

What do you think of this hypothetical merger? If you’re an ING Direct customer, would you change banks based on the purchase alone? Do you think Ally Bank will be able to handle the merger of the deposits? Do you think it’s weird that ING Direct, a bank with Dutch heritage, would be partly owned by General Motors, a domestic car manufacturer?

New York Post

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