Back in May of this year, I opened an online savings account with FNBO Direct because of their high 6% APY promotional interest rate through September 28, 2007. Now that I’ve kicked the tires with them for a few months, it seems time to give an update as to my impressions so far with them.

FNBO did indeed hold true to their word and pay me the 6% interest during the promotional period. They recently announced that their new standard rate is now 5.05%. This was quite a drop, however it’s still higher than what other online savings accounts offer. At the time of this writing, HSBC Direct’s interest rate is 4.50%, ING Direct’s is 4.30%, and GMAC Bank’s rate is 4.75%. Because their OSA is still higher than most, I still have some of my money with them.

The picture isn’t all good news though, as being new to the world of online savings accounts, they’ve made a few beginner mistakes since their online debut. Back in August, I received an e-mail entitled “Due Diligence 2nd Request”. This e-mail was informing me that they hadn’t received any information about my current employer, occupation or position. The e-mail went on to state that if I didn’t provide them with this information within 30 days, my account may be closed.

I knew the e-mail had to have been a mistake, and my suspicions were later confirmed when they sent out another e-mail saying the first was in fact sent in error. This whole fiasco created quite a stir around the PF blogosphere, and understandably, shook the confidence of many who had opened accounts with them (myself included).

Since their faux pas, the news about FNBO Direct has been relatively quiet. Hopefully this means they have learned from this experience and have tightened up their communication procedures. Only time will tell if this is the case.

FNBO Direct is also very particular about their interpretation of the USA Patriot Act. This act, passed as a result of the 9/11 attacks, requires financial institutions to know in detail information about their customers. The intent of this requirement is to frustrate the use of the U.S. financial system by terrorist organizations. In their interpretation of this act, FNBO contacted me and requested proof-of-ownership of my local checking account when I attempted to link it to my FNBO account through their website. To prove my ownership, I needed to fax them a copy of the first page from my checking account statement.

Although I applaud their diligence to comply with federal law, I think they can reign in their legal department a bit and find less obnoxious ways to verify their customers’ information. I have quite a few bank and credit card accounts, and FNBO has been the first bank to be so picky about how they interpret this law.

For the moment, I still have some money with them. I am giving them the benefit of the doubt, chalking up their hiccups to beginner mistakes and an overzealous legal department.

My bottom line recommendation is to take a wait-and-see approach with FNBO. In the meantime, if you want a rock-solid online savings account that’s already been through the beginner’s bumps, you can’t go wrong with ING Direct’s Orange Savings Account. Their interest rate is not the highest, however I’ve been with them since 2001, and I have never had a bad experience.

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