NetBank, one of the first online-only banks in the 1990s, finally made to the Wall Street Journal headlines again. Unfortunately, this time, the news is NetBank is closed by federal regulators after suffering significant loss in the aftermath of housing bubble. According to the notice shown on the NetBank homepage:

On September 28, 2007, NetBank, Alpharetta, GA was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. All insured depositors are now customers of ING Direct Bank, member FDIC. No advance notice is given to the public when a financial institution is closed.

The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a business checking account, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled information which should answer many of your questions.

Most NetBank customers shouldn't worry too much. Federal regulators have arranged a swift sale of NetBank's banking accounts to ING Direct, which has published a quick FAQ list reassuring that customers will continue to have access to the money as usual for the amount that is insured by FDIC (up to $100,000 per depositor). For those who has trusted NetBank with more than 100 grand, however, they will become creditors of the now defunct bank as it files the Chapter 11 bankruptcy on Friday. It is likely that they will only recover 50 cents per dollar on the uninsured position.

As an ex-customer and ex-shareholder, I'm not that surprised. In fact, lured by its generous signup promotions, I opened checking and savings account at NetBank in 2002. Back then, I only had banking accounts with my local credit union. Satisfied with the simplicity of NetBank's online model and novelty, and driven by the almost ignorance of investment then, I also became a NetBank shareholder that year.

At one point of time, I have a total balance of $52,000 with NetBank. However, after a while, I noticed that NetBank does not have a competitive edge and couldn't keep up with the rates advertised by other online savings outlets (especially ING Direct), so I moved my money out of NetBank and essentially abandoned it.

At the same time, I was reading its quarterly SEC filings and realized that it lacked a strategy to grow the business and its financial performance had been subpar, so I chose to sell my stocks in mid 2003 -- I actually made a $283 profit of my original investment of $2,050 in about a year's time.

The news today is a good reminder call to those who are chasing yields regardless of the quality of the bank you are entrusting money to. In today's issue, WSJ also reported that Countrywide Bank, the banking arm of the troubled mortgage originator, is attracting new savings at a speed of $50 millions per day. Obviously, many people are glued to the 5.50% APY rate while other banks are cutting rates after the announcement of 0.50% drop of Fed rate last week. However, people might need to worry whether it is worthwhile to take the risk to get the paltry improvement of less than $100 a year on a $10,000 investment.

For now, I'm satisfied with parking my cash with Fidelity's money market account funds now. The fund giant is unlikely to fail, and even it does, my money in the money market funds is still safe as they are managed separately.