By Althea Chang | MainStreet.com

Considering online banking?

If you’ve already been shopping online regularly, changing over to solely online banking won’t seem like much of a stretch. Plus, data encryption technology and other measures ensure security over the Internet.

Here are some pros and cons of making the switch to banking online:

Pro: Strong First-Rate Yields
A major factor driving the popularity of online banking is the great returns from high-yield checking accounts compared with those at brick and mortar banks. Since all of an online bank’s business is done on the Internet, over the phone and by mail, these banks have low overhead costs and the savings is passed on to the account holder.

Jacksonville, Fla.-based Everbank’s high-interest checking account, for example, offers an introductory three-month bonus yield of 2.51% and a first-year APY of 1.84% for balances between $50,000 and $100,000, compared with a recent national average of 0.16%. And Everbank promises to offer yields among the top 5% of competitive accounts at leading banks and thrifts.

Redneck Bank, which is owned by the Bank of the Wichitas, offers a whopping annual percentage yield of 5.25%, as long as you play by their rules.

Another popular online checking accounts include Schwab’s High Yield Investor Checking Account (Stock Quote: SCHW) which offers a 1% APY. ING Direct’s Electric Orange Checking Account (Stock Quote: ING), which yields as much as 1.65% (if your balance is more than $100,000) and at least 0.25% (if your balance is $49,999.99 or less).

Con: Don’t Forget the Fees
Racking up ATM transaction fees can become a problem with some online banks.

ING Direct Electric Orange account holders can only use the Allpoint national network of 32,000 ATMs free. At other ATMs, you’ll have to pay the ATM operator’s fee, but ING won’t charge you for using an ATM outside of their network. Your best bet here is to opt for cash back every time you go to the grocery store.

Schwab’s account offers the best deal for those who make frequent ATM visits. You’ll get a rebate for all ATM charges during the same checking account statement in which you incur them.

Pro: Tech Perks
One of the best features of online banks, especially for the forgetful or undisciplined, is an automatic savings plan feature that allows you to transfer fixed amounts of money to or from other accounts on a weekly, monthly or quarterly basis.

And for those who like to micromanage their finances, you can upload you transaction information from ING and Schwab to your home computer for use with personal finance software including Intuit’s Quicken (Stock Quote: INTU) or Microsoft Money (Stock Quote: MSFT).

How do credit unions and banks differ? Here are the key differences:

Credit Unions

Banks

Money deposited in credit union members typically stays in the local community. They are also more willing to loan smaller amounts banks feel are unprofitable. For these and other reasons there is increased interest in, and support for, credit unions. Here’s how you can find a credit union.

Any wonder why credit unions are so popular? Share your favorite credit union. What makes it special to you?

By Lianting Tu | MainStreet.com

When one walks into the dining room at Sterling National Bank’s Fifth Avenue headquarters (Stock Quote: STL), there’s an immediate sense of old world elegance. The Victorian furniture is impressive, a grandfather clock stands in the corner and it feels like you’ve just walked into an old and exclusive hotel in Venice. In both form and function, this is old school banking.

Sterling’s clients, most of which are small businesses and professionals, are invited to brunch regularly. The food is prepared by the in-house kitchen and these meals are an opportunity for the president, John Millman, and chairman, Louis Cappelli, to chat with their clients, hoping to grow the relationships over poached eggs and orange juice.

“Every day the chairman, the president and senior loan officers are here actively meeting with small and midsize companies,” says Millman. “To us a small business is a very important customer.”

In Banking, Is Bigger Always Better?
Big banks like CitiGroup (Stock Quote: C) and Bank of America (Stock Quote: BAC) move hundreds of millions of dollars in business loans every day and cut business clients on a large scale. For some small business owners, doing business with the large institutions has drawbacks.

“Big banks only care about numbers whereas for community banks customers are treated like real people,” said Dan Deighan, CEO of Deighan Financial Advisors, a financial consulting firm in Melbourne, Fla.

Although many smaller community banks like Sterling move a lower volume of capital compared with the big banks, they conduct their business in a more personal manner, emphasizing the long-term customer relationship. Many community banks, which in this economic climate are often more able to lend than big banks, see an opportunity for growth.

“Relatively speaking at least, community banks are doing better as a group than other segments of our financial system,” said Fed Chairman Ben Bernanke in a speech in March. In Sterling’s case, the $2 billion small-cap community bank reported 11.4% growth in earnings in 2008 and 30% growth of net income from 2007. In the first quarter of 2009, Sterling has seen more new customers, although the numbers haven’t come out yet.

Finding Stability in an Unstable Economy

Community banks make up 96% of all banks in the U.S., according to the Independent Community Bankers of America, and most of those are still quite secure and sufficiently capitalized.

“Many have no subprime loans and stayed away from all of the exotic instruments. They are more conservative and traditional lenders,” said Paul Merski, chief economist at the association. Big banks over the years have practiced aggressive banking strategies. As a result they have billions of toxic assets on the books which in turn keep them from lending more freely.

The number of community banks increased 2% over the fourth quarter of 2008. The small business departments of many large banks are cash-strapped, Merski says, so small businesses shift to community banks not only for loans but for a closer borrowing relationship.

A Solid Relationship

“It’s a relationship bank and senior executives are available. I can go all the way to the top,” says Timothy Bryan, chairman of an IT consulting firm named Galaxy Systems and a Sterling client. Bryan is a big fan of his frequent breakfasts and lunches with Sterling executives.

“It feels great to have lunch with the president and chairman in the private dining room. They are trying to understand my business,” says Bryan, whose company has been banking with Sterling for 19 years.

Law firm Abrams, Garfinkel, Margolis & Bergson, LLP, another Sterling client, says the check-writing machine developed by Sterling to print certified bank checks right in the law firm helped increase the efficiency in their business.

“I cannot imagine large banks would do that,” says Neil Garfinkel, a partner at the law firm.

Risk Tolerance
The relationship model of community banks means they have to know their customers’ businesses well and be able to make informed lending decisions. Because of their size, they often can’t afford to make risky or poorly researched loans. On the contrary, says Merski, large banks generally lend according to formulas and broad policy decisions.

“Say one day they are cutting manufacturing loans. They cut it regardless of whether your company is doing differently than others,” he says.

With large amounts of personal capital invested, executives in community banks tend to be more cautious and take less risk when making decisions. Recently, this has led to higher capital levels and healthier balance sheets compared with larger financial institutions.

Taking Advantage of TARP
Small community banks, according to The New York Times, are the first ones to pay back TARP money. Examples include Signature Bank of New York, Old National Bancorp of Indiana, Iberiabank of Louisiana and Bank of Marin Bancorp of Novato, Calif.

As a TARP recipient, Sterling also is considering the possibility of returning the $42 million it received from the government. Millman says the bank together with many other banks didn’t really need the money, but the bank considered it an opportunity to make more loans and grow their business.

“We have seen unique opportunities in ‘08 and ‘09 because more customers that are rejected by distressed big banks turn to Sterling for loans,” Millman says.

Spend much less than you earn.  It may sound simple, but this idea is the basis for financial security.  Master this concept and all secondary goals, such as paying off debt or saving for a large purchase, will fall into place with ease.

The first step to achieving this goal is to understand take-home income.  Consider what is deposited into your bank account each month, and not your gross salary.  If you are participating in an employer-sponsored retirement plan, such as a 401(k), your take-home income is what you net out after that deduction.    A tip for those who are paid bi-weekly:  assume your monthly income is only two paychecks.  When those lucky two months come around when you are paid three times, consider these paychecks a windfall to help you catch up with other goals.

The second step is to understand your spending.  If you use your debit card for most purchases your monthly bank statements will be a great place to start.  Print out a few months of statements from your online account and review where you are spending.  Don’t forget the credit cards! Print the corresponding months’ statements and take a good look at where your money is going.  If you use cash for most of your purchases, it’s time to start a spending journal.  Resolve to write down every single expense for 30 days.  A great trick is to collect a receipt from every purchase all day long – gather those receipts at night to record in a journal on online for easy tracking.

The third and final step is to compare the income with the expenses.  If you are spending less than you earn every month there should be a surplus that you can now assign to other goals.  If you see a theoretical surplus on paper, but not in your actual wallet, review your expenses again.  Are you overlooking anything?

If your expenses exceed income it’s time to start cutting.  It should be easy to start – identify the expenses you can live without.  Can you lose that subscription?  Pare down your cell phone plane.  Drop the premiere cable channels (or cable all together).  Bring your lunch to work, and cook more at home. Just remember, every little bit counts.

You’ve cut everything you can bear and are still spending more than you earn – what now?  The reality of this situation is you must increase your income.  Can you get a part time job on weekends?  Or consider selling some of your “stuff” online.  This might also signal time to move to a less expensive home or city.

Take a good look at what you’re earning and what you’re spending. When you do, you’ll set yourself up for financial success.  Good luck!