If you're like most people, you've heard a lot about online banking but probably haven't tried it yourself. You still pay your bills by mail and deposit checks at your bank branch, much the way your parents did. You might shop online for a loan, life insurance or a home mortgage, but when it comes time to commit, you feel more comfortable working with your banker or an agent you know and trust.
Online banking isn't out to change your money habits. Instead, it uses today's computer technology to give you the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage your finances more quickly and efficiently.
Origin of online banking
The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry.
For years, financial institutions have used powerful computer networks to automate millions of daily transactions; today, often the only paper record is the customer's receipt at the point of sale. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use.
Banks view online banking as a powerful "value added" tool to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment.
Brick-to-click banks
Today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. Those that do are sometimes referred to as "brick-to-click" banks, both to distinguish them from brick-and-mortar banks that have yet to offer online banking, as well as from online or "virtual" banks that have no physical branches or tellers whatsoever.
The challenge for the banking industry has been to design this new service channel in such a way that its customers will readily learn to use and trust it. After all, banks have spent generations earning our trust; they aren't about to risk that on a Web site that is frustrating, confusing or less than secure.
Most of the large banks now offer fully secure, fully functional online banking for free or for a small fee. Some smaller banks offer limited access or functionality; for instance, you may be able to view your account balance and history but not initiate transactions online. As more banks succeed online and more customers use their sites, fully functional online banking likely will become as commonplace as automated teller machines.
Virtual banks
If you don't mind foregoing the teller window, lobby cookie and kindly bank president, a "virtual" or e-bank, such as Virtual Bank or Giant Bank, may save you very real money. Virtual banks are banks without bricks; from the customer's perspective, they exist entirely on the Internet, where they offer pretty much the same range of services and adhere to the same federal regulations as your corner bank.
Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields, lower fees and more generous account thresholds.
The major disadvantage of virtual banks revolves around ATMs. Because they have no ATM machines, virtual banks typically charge the same surcharge that your brick-and-mortar bank would if you used another bank's automated teller. Likewise, many virtual banks won't accept deposits via ATM; you'll have to either deposit the check by mail or transfer money from another account.
Advantages of online banking
Convenience: Unlike your corner bank, online banking sites never close; they're available 24 hours a day, seven days a week, and they're only a mouse click away.
Ubiquity: If you're out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7.
Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.
Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.
Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.
Disadvantages of online banking
Start-up may take time: In order to register for your bank's online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together.
Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby.
Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information.
The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.
Benefits of banking online
Whether your bank is a traditional brick and mortar institution or a Web-only bank with no brick and mortar branches, online banking lets you connect to your bank through the Internet and do things such as view your accounts, transfer money between accounts, view images of canceled checks, print copies of those checks and pay bills online. You'll find that it's common for online banking sites to be compatible with money managing programs such as Quicken and Microsoft Money.
Many banks make it easier to manage your checking account by allowing you set up e-mail alerts so you can be notified when checks clear or when your balance slips below a certain level. There is also a detailed listing of your canceled checks.
If you'd like to eliminate paper checks from your life, you'll find that a growing number of companies allow you to make automatic payments through your online banking account.
Getting set up for online bill pay
Getting started is easy. The bank's Web site will walk you through the steps of registering the bills you want to pay and the accounts you want to use to pay them. You'll only have to enter the information once. You can always make changes and add or subtract bills.
If a monthly bill is for the same amount each month, you might want to schedule a recurring payment. If the amount varies from month to month you can pay the bill each month on a "one time" basis.
Set your schedule
Once you have registered the accounts you wish to pay online, the next step is to schedule payments. Your creditors receive your online payment in one of two ways: electronic payment or check. If the company is set up to accept electronic payments, your payment is automatically debited from your account and deposited electronically into their account. If the company can't accept electronic payments, your bank issues a check based on your online payment instructions.
Most bill payment sites include a payment activity page that lists all of your payments and their status -- scheduled, pending or processed.
Be aware that companies sometimes change the billing address or your account number without warning. It's important to check your statement each month to verify those details as well as your transactions.
Security
You'll have a user name and password to access your online account. Just as with any information used to access any other financial account, you should keep these codes secret. Your bank will tell you what to look for -- usually an icon of a locked padlock -- to ensure you're accessing your account over a secure line.
You should also beware of a scam called phishing where crooks send out e-mails that might look exactly like e-mails from your bank. These e-mails often claim that some account or personal information is needed. You're asked to click on a link and fill in the information. As a hard-and-fast rule, never click on a link in an e-mail and then divulge account information. Call your bank -- don't use a phone number supplied in the e-mail -- and ask if the e-mail is legitimate.
Whether you bank online or prefer the old fashioned way, you receive a statement every month that details transactions and account status. In the next section, you'll see why you should take time each month to carefully review your statement.
Online banking isn't out to change your money habits. Instead, it uses today's computer technology to give you the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage your finances more quickly and efficiently.
Origin of online banking
The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry.
For years, financial institutions have used powerful computer networks to automate millions of daily transactions; today, often the only paper record is the customer's receipt at the point of sale. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use.
Banks view online banking as a powerful "value added" tool to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment.
Brick-to-click banks
Today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. Those that do are sometimes referred to as "brick-to-click" banks, both to distinguish them from brick-and-mortar banks that have yet to offer online banking, as well as from online or "virtual" banks that have no physical branches or tellers whatsoever.
The challenge for the banking industry has been to design this new service channel in such a way that its customers will readily learn to use and trust it. After all, banks have spent generations earning our trust; they aren't about to risk that on a Web site that is frustrating, confusing or less than secure.
Most of the large banks now offer fully secure, fully functional online banking for free or for a small fee. Some smaller banks offer limited access or functionality; for instance, you may be able to view your account balance and history but not initiate transactions online. As more banks succeed online and more customers use their sites, fully functional online banking likely will become as commonplace as automated teller machines.
Virtual banks
If you don't mind foregoing the teller window, lobby cookie and kindly bank president, a "virtual" or e-bank, such as Virtual Bank or Giant Bank, may save you very real money. Virtual banks are banks without bricks; from the customer's perspective, they exist entirely on the Internet, where they offer pretty much the same range of services and adhere to the same federal regulations as your corner bank.
Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields, lower fees and more generous account thresholds.
The major disadvantage of virtual banks revolves around ATMs. Because they have no ATM machines, virtual banks typically charge the same surcharge that your brick-and-mortar bank would if you used another bank's automated teller. Likewise, many virtual banks won't accept deposits via ATM; you'll have to either deposit the check by mail or transfer money from another account.
Advantages of online banking
Convenience: Unlike your corner bank, online banking sites never close; they're available 24 hours a day, seven days a week, and they're only a mouse click away.
Ubiquity: If you're out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7.
Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.
Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.
Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.
Disadvantages of online banking
Start-up may take time: In order to register for your bank's online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together.
Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby.
Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information.
The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.
Benefits of banking online
Whether your bank is a traditional brick and mortar institution or a Web-only bank with no brick and mortar branches, online banking lets you connect to your bank through the Internet and do things such as view your accounts, transfer money between accounts, view images of canceled checks, print copies of those checks and pay bills online. You'll find that it's common for online banking sites to be compatible with money managing programs such as Quicken and Microsoft Money.
Many banks make it easier to manage your checking account by allowing you set up e-mail alerts so you can be notified when checks clear or when your balance slips below a certain level. There is also a detailed listing of your canceled checks.
If you'd like to eliminate paper checks from your life, you'll find that a growing number of companies allow you to make automatic payments through your online banking account.
Getting set up for online bill pay
Getting started is easy. The bank's Web site will walk you through the steps of registering the bills you want to pay and the accounts you want to use to pay them. You'll only have to enter the information once. You can always make changes and add or subtract bills.
If a monthly bill is for the same amount each month, you might want to schedule a recurring payment. If the amount varies from month to month you can pay the bill each month on a "one time" basis.
Set your schedule
Once you have registered the accounts you wish to pay online, the next step is to schedule payments. Your creditors receive your online payment in one of two ways: electronic payment or check. If the company is set up to accept electronic payments, your payment is automatically debited from your account and deposited electronically into their account. If the company can't accept electronic payments, your bank issues a check based on your online payment instructions.
Most bill payment sites include a payment activity page that lists all of your payments and their status -- scheduled, pending or processed.
Be aware that companies sometimes change the billing address or your account number without warning. It's important to check your statement each month to verify those details as well as your transactions.
Security
You'll have a user name and password to access your online account. Just as with any information used to access any other financial account, you should keep these codes secret. Your bank will tell you what to look for -- usually an icon of a locked padlock -- to ensure you're accessing your account over a secure line.
You should also beware of a scam called phishing where crooks send out e-mails that might look exactly like e-mails from your bank. These e-mails often claim that some account or personal information is needed. You're asked to click on a link and fill in the information. As a hard-and-fast rule, never click on a link in an e-mail and then divulge account information. Call your bank -- don't use a phone number supplied in the e-mail -- and ask if the e-mail is legitimate.
Whether you bank online or prefer the old fashioned way, you receive a statement every month that details transactions and account status. In the next section, you'll see why you should take time each month to carefully review your statement.
by bankrate
