Suppose you’re sitting on a little cash. Should you put some in a CD? Sock it away in a money market account? Now imagine you can visit your bank’s website to figure it out. Using an online tool, you can move the money around and examine how your earned interest and rates will change, depending on where you put it. Colored bar charts representing the amount of interest earned in a year shift up and down depending on your choices. When you decide on the right mix, you can open a new account with a few key strokes.

One might assume every bank would offer such a tool, but few provide customers with anything close. The application described above, called the "intelligent cash optimizer," was introduced last year by E-Trade Financial. E-Trade was given up for dead after the dotcom bust, but the online brokerage resurrected itself by sharply cutting costs and embarking on a diversification plan that included acquiring a Web-only bank and linking it with its core trading operations. E-Trade’s net interest income, a significant portion of which derives from its banking operations, accounted for 51 percent of its revenue in 2005. Analysts say the company’s success derives in no small part from its customer-friendly services. The company reported earnings of $1.7 billion in 2005.

And E-Trade is giving brick-and-mortar banks a run for their money. According to a June 2006 study by the Pew Internet and American Life Project, 43 percent of Internet users, or about 63 million American adults, now bank online. And a survey released early this year by IT consultancy Keane found that financial institutions consider customer satisfaction with online services key to their revenue growth through cross-selling of products to existing account holders. Yet many banks offer little more than rudimentary services such as the ability to check an account balance or pay bills electronically.

"Very few banks don’t realize at this point that online banking is big business," says Matt Poepsel, VP of application management at online benchmarking company Gomez. "But many banks are still finding their way." Banks need to offer more online information and advice that is tailored to the individual account holder, as well as more sophisticated, easy-to-use online tools, experts say. However, Keane found 49 percent of banks surveyed considered their technology platforms to be the primary obstacles to improving their online customer experience.

"At some level, E-Trade shouldn’t exist," says the company’s CIO, Greg Framke. "If big firms had embraced the Internet as a channel, we wouldn’t have had a chance." Instead, industry experts point to E-Trade as a model for how banks should run their online operations and prepare to serve the emerging generation of customers raised on the Internet.