WALNUT CREEK, Calif. _ Meghana Reddy doesn't have much use for paper checks, given that she makes most of her bill payments online. That's why the 28-year-old San Francisco resident has an Internet-based checking account.

"I think it's convenient to be able to do everything online," said Reddy, who works in finance. Last year, she opened an Electric Orange checking account through ING Direct, an online bank. "I travel a lot and having access online is pretty big. It's just a lot of hassle with paper checks."

Internet-based checking accounts make it possible to not only pay bills and conduct banking transactions online but also offer attractive, interest rates not typically found with comparable brick-and-mortar checking accounts.

While some traditional checking accounts do offer competitive interest rates, they tend to require a high balance that is typically in the tens of thousands of dollars.

That's not the case with Internet-based checking accounts. Consumers who open these accounts can rack up high interest rates without having to have a lot of money in the underlying account.

"People have never thought of a checking account as a vehicle to save money," said ING Direct executive Todd Sandler, who developed the Electric Orange checking account that was first introduced in November 2006.

The Electric Orange checking account is meant to provide consumers with a way to pay bills online combined with "the earning power of a savings account," said Sandler.

As with brick-and-mortar checking accounts, Internet-based checking accounts are FDIC-insured. They also provide access to ATM machines through a debit card that can also be used for purchases. Account holders can deposit money into Internet-based checking accounts by either mailing a check to the bank, setting up direct deposit or transferring funds from another account.

And while Internet-based checking accounts typically have options for writing paper checks in situations where they are necessary, it may take a few days for such checks to be sent out.

Internet-based checking accounts are aimed at people who are more comfortable paying their bills online as opposed to writing checks.

"We are not trying (to reach) those customers who write a lot of paper checks," said Sandler.

Not having to deal with the expense of maintaining brick-and-mortar bank branches helps Internet-based banks offer higher interest rates on checking and savings accounts, according to Greg Garrabrants, chief executive officer of Bank of Internet.

"We don't have the cost of those savings and we pass the savings on to you," he said.

Mikhail Belilovskiy is a 44-year-old computer programmer from San Francisco who has a checking account with Bank of Internet.

"The high interest rates, that's the most important. The interest rate on this account is higher than a normal regular checking account," he said.

Belilovskiy doesn't miss dealing with paper checks at all.

"Certain institutions still require a paper check. I prefer doing my checking online. I'm actually disappointed if I have (to write checks)," said Belilovskiy.

He's not alone.

In the last few years, consumers have been writing fewer paper check as the Internet provides a growing platform for online bill paying services and e-commerce transactions.

In 2003, 46 percent of all non-cash transactions involved payments made with checks, a number that dropped to 33 percent in 2006, according to a study released in December by the Federal Reserve.

As a general rule, someone that signs up for an Internet-based checking account is going to have a comfort level with online banking, say observers.

"Some people hate branch banks. They don't want the lines. They want to do their banking at 2 in the morning in their pajamas," said Garrabrants.

Still, some consumers choose to keep a large amount of money in an Internet-based checking account to pay large bills with while keeping a smaller account in a brick-and-mortar checking account, he said.

Justin Pritchard, banking expert for www.about.com, advises consumers who have an Internet-based checking account to keep money in a brick-and-mortar checking account.

"Keep it open and link the two electronically so you can zap money back and forth between the Internet checking account and the brick-and-mortar checking account," said Pritchard.
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