Nowadays there are many online banks offering all kinds of banking services like: checking accounts, savings accounts, money market accounts and certificate of deposits (CDs). You might be quite familiar with some of them as they are advertising all the time. However, you might also have never heard of some of them. The later sometimes may even offer better interest rates than other well-known banking institutions. Before you start your relationship with a new bank, you have to do a little bit research about the new bank. You have to make sure that the bank is insured by FDIC and have been in banking business for many years.

Following online banking institutions as recommended here provide good customer support and offer competitive rates.

1. ING Direct

I should admit that ING is not always offering best interest rate in banking industry but they are a very good online bank to deal with. Right now, their ING Orange Savings Account is still offering 3.00% APY. I choose ING as the NO 1 online bank just because of how easy they make everything. I can easily transfer any amount in and out of my account at ING. The online banking interface is also very intuitive. You can also easily refer your friends to open a new account there and both of you can get bonus. Current APY is 3.00%. (Frankly speaking, interest rate is not the most important factor when the rates only differ by 0.5%.)

2. Washington Mutual

This is my another favorite bank by far. If you open a free checking account together with an online savings account, you can get 3.30% APY. With WaMu, you can get free checks for life, cash back on your debit card purchases, free ATM withdraws, free outgoing wire transfers worldwide and most importantly, no monthly fees! Yes, WaMu is so good! You can use their online banking service without any worry. The free of fees, convenience and high yield interest make WaMu checking/savings combination a top choice for all of you.

3. HSBC Direct

If you are not comfortable with WaMu, you can consider HSBC Direct banking as another option. HSBC direct is rated as the Best Overall Online Bank by Kiplinger’s Personal Finance in 2006. HSBC currently offer a very competitive interest rate ~ 3.05% APY. Their service is completely online. You can transfer you money in and out of your current banking accounts for free. Their customer support is also very helpful. However, if you have an account at ING, I really doubt whether you will open another account at HSBC. Of course, if you have an account at HSBC, I will also doubt whether you will open another one at ING. Sometimes, once you have  a high-yield savings  account,  you really don’t need to open another one. HSBC is offering  $75 sign-up bonus through May 31, 2008 (here).

4. E*Trade

E*Trade, known as a discount online broker, is also a very competitive online bank. E*Trade only provides Complete Savings Account and Money Market Account. The reason why I put E*Trade here is you can link your banking account with your brokerage account at E*Trade  and instantly transfer funds between the two accounts. This feature enables you to transfer your funds between a savings account and brokerage account immediately. In this way, you don’t have to wait for several days until an ACH transfer completes.

Of course, there are other online banks provide great service and competitive rates. You can also consider CapitalOne Direct Banking, WT Direct, AmTrust and Emigrant Direct. They also offer great interest rates but other than that you can’t expect more. This post is open to all of you, please feel free to list your top online banking institutions.