Big banks are scrambling to meet a challenge from Internet-only institutions that offer much higher certificate of deposit rates.

"Banks are paying close attention to what is happening to CD rates online, and they are doing everything they can to adjust their rates and adjust their services in order to stay attractive," said Sherri Neasham, chief executive officer of Financenter.com. The Tucson, Ariz., research firm this week released a survey of 35 lending institutions that underscores the gap between rates offered online by Internet-only banks and those at traditional banks.

With rates on 12-month CDs that lag behind the Internet banks' by an average of more than three-eighths of a percentage point, the old-line banks are touting their broader offerings of investment products and using gimmicks like online CD auctions to lure customers, Ms. Neasham said. "This is a real scare to banks. If people buy their investments online, this is going to affect deposits at a bank, and that will affect their loan business."

The survey said that four of the five institutions offering the best returns on 12-month CDs - 7.25% - are Internet banks.

The exception is Flagstar Bank, a thrift institution in Bloomfield Hills, Mich., that only offers the CDs online. Online specialists NetBank of Atlanta; Umbrella Bank, Milwaukee; G&L Internet Bank, Pensacola, Fla; and E-Trade Bank, Arlington, Va., also offer the top rate, which is more than double the 3.25% return offered on the same investment by Atlanta's SunTrust Bank.

PNC Financial Services Group Inc. of Pittsburgh, which offer a 5.11% rate of return on its site, competes on service, by cross-selling products and by offering CD auctions, a company spokesman said. The auctions - also offered on the Web sites of FleetBoston Financial Corp. and USABancshares - let customers bid for federally insured certificates starting at a 10% yield. The rate they get is determined by the level at which the bidding stops.

At Wells Fargo & Co., too, the focus is on service, a spokesman said. The company, which pays a 5.02% rate of return on its 12-month CD, offers investors a single brokerage account statement that lets them track the progress of all their investment products. And it makes it easy for customers to transfer money among accounts, the spokesman added.

Wells also participates in a secondary CD market. If necessary, investors can sell their CDs before maturity, at market prices, without early withdrawal fees or penalties.

The survey said the average interest rate on 12-month CDs was 6.5%. For the 14 Internet banks that were surveyed, the average was 6.875%. Among the 21 other banks in the survey, including PNC, Wells, and Chase Manhattan, the average was 6.29%.

Ms. Neasham said the discrepancy is forcing banks to act because, unlike 10 years ago when investors typically met with advisers and bought investments face to face, CDs are sold and promoted nationally through the Internet. Lower overhead expenses let online banks pay higher interest rates, she said, and force larger institutions to scramble to keep up.

But according to Burton Greenwald, a consultant in Philadelphia, banks are still competitive because many investors remain uneasy about buying their investment products on a computer. "The trend is changing, but people are still going to the bank first," Mr. Greenwald said. "There isn't a lot of comparison shopping."

Ms. Neasham said creating customer relationships is paramount "The key, wherever you are selling, is to meet the users' needs."

As Internet banks move to upgrade customer service, she said, "brick-and-mortar banks will have to work to make their prices comparable."

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