Online Banking

With the maturity and pervasiveness of the Internet, online banking has grown from a limited elitist product to virtually a commodity of the banking industry. An interesting phenomenon is the fact that even having a traditional bank has become optional, and in some ways, less desirable. In truth, the online banking has simplified banking transactions for many consumers. While some people crave the comfort of being able to visit the “brick and mortar” branch from time to time, others are attracted to the (usually) better rates offered by online only banks.

Literally every nationwide bank offers some level of online banking service today, and there are a large number of online only banks that have come into existence over the last decade. This has led to a level of competition in this area that has created a veritable smorgasbord of options for online banking customers.

We will focus on some key factors you should consider when thinking about entering the world of online banking, or even when evaluating different online banks, whether a function of a traditional bank or an online only bank.

Many people “test the waters” of online banking by taking advantage of offerings that become available through their current traditional bank where they have their checking account. This is somewhat of a natural, and comfortable, step to take. After all, you chose your bank for some reason, which is probably still valid. You may find that you are comfortable with the fact that you can visit the physical location of your bank if an issue should arise. In some instances, online banking involves a virtual environment only: such an idea tends to make some consumers nervous. Finally, if this is your first trial of online banking, you do not even know what you need yet!

Almost every bank has a free demo of their online banking service, which will allow you to take a virtual test drive. Since there are differences in the interface and processing rules from bank to bank, it would be wise to avail yourself of several of these demos as part of a research phase, before choosing any bank, even your current bank. It would be best to limit yourself, however, to viewing the demos of banks that you might consider using. After all, if you would not consider opening an account at a particular bank, it probably does not matter how nice their online banking features are.

Unlike traditional account activity of balancing statements and writing checks with an “offline” bank, the online banking interface truly is a different concept. You will want to find one that is intuitive and makes sense to you. Otherwise, you will be “fighting with it” week after week.

Once you select a few interfaces that you are comfortable with, then evaluate the banks themselves to choose the one that is right for you. Choosing a bank is like buying a suit or dress – when it fits you, you will know. Considering the huge number of good banks to choose from, don’t worry so much about finding the best one, but rather find one that fits you and your style well.

If nothing else, online banking offers a level of flexibility no traditional bank could ever imagine. Your information is available 24 hours per day, 365 days per year, excluding any unfortunate outage events. But take heart – banks see their online interface as a vital part of the services they now offer, and outages are dealt with very quickly. In fact, for online only banks, outages mean they are literally out of business until service is restored. Do you want to check a balance? Transfer funds? Pay bills? Research a transaction? It is all there, and all available all the time and consumers can easily utilize online banking options whenever they like, making the use of such services adapatable to one’s busy lifestyle.

When shopping for an online bank, there are some key things to look for in service flexibility. Included in the suite of flexible options you will want to consider are things like a debit card, overdraft protection, online bill pay, ATM access (both for withdrawals and deposits), and customer service hours. Customer service hours are easily overlooked. But, if you are now banking 24 hours per day, you will want to be able to get questions answered when you need the answer, not during the next bank business day. This applies to both technical questions about the site (“how do I …”), as well as traditional banking questions about your account.

Also, transferring funds between accounts within the same bank is virtually universal with online accounts – but not completely! So if this is something you enjoy doing on a regular basis, be certain that the bank you choose does in fact support this option.

Similar to flexibility is convenience. But the real key of convenience is how online banking will literally change your life. The truth is; it has never been an issue if the bank is open when you pay your bills, because you simply write a check and mail it. The difference between writing a check and using online bill payment is that when you put a check in the mail, you never really know when the check will actually be processed. After all, you have to speculate on the actual mail delivery, as well as the speed with which the recipient will process the paper check, as well as the inconvenience of never having a stamp when you need one, and the occasional envelope you have to provide. Now, you can schedule your payment delivery date precisely and pay no postage! Thus, with online banking options, consumers will find that their payments are more manageable, timely and precise.

Also, when mailing paper checks, there is always the possibility, rare as it may be, that a bill payment will be lost in the mail. With online bill payment, there is usually no mail to be lost. Of course, the dreaded “lost in the mail” excuse no longer works, but when a paper bill payment truly is lost in the mail, you have to wonder if it will show up later – and will the check be processed even if you have sent a replacement? Or is it worth the expense to issue a Stop Payment order on the check? All of this is greatly reduced using online banking bill payment features.

Reduced, but not completely eliminated. Most banks that offer online bill pay as a part of their online banking will issue and mail a physical check on your behalf when the recipient cannot receive an electronic payment.

Deposits and withdrawals will be done either by mail (with all the above concerns and questions), or more commonly, via ATM. So, when doing your shopping, be sure to consider convenient access to ATM’s that you can use for deposits. Direct deposit of the paycheck is one thing, but we all still get the occasional paper check for one reason or another, and you will need to be able to make deposits. Score one for the online banking service being offered by a local “brick and mortar” bank.

With flexibility, though, comes some additional consumer responsibility. You must take security of your online accounts serious, or else! On the banking side, make sure you are dealing with a reputable company, and that they use secure encrypted protocols for online banking access. Secured Socket Layer (SSL) is the terminology, and verifying a site is using encryption is not difficult. In modern web browsers, you will want to ensure that once you reach the log on screen, the URL indicates HTTPS:// as opposed to the normal HTTP:// at the start, and look for other visual clues (which vary by browser and operating system). Generally, this will be an icon that looks like a lock or a key.

On the customer’s side, however, it is much more challenging. A few things to keep in mind will keep you safe and secure:

Only share account information with those with a “need to know.” This should be limited to anyone who is a signatory on the account. In other words, if you do not want someone making decisions about when and how much money to take out of your account, that person does not “need to know.”

If you must use a public access computer (such as at the library or a kiosk), be certain to use the “log out” link on the bank’s web site, and close the browser when you are finished. If allowed, clear the cache as well. Generally, it is best to not use public access computers, if you can possibly avoid it.

Avoid being “hooked” by phishing scams. Your bank will not send you an email or phone you to ask you to verify your ID and password. They already have it! If you suspect there may be a problem with your account, call the bank yourself.

You may have already noticed that there are options galore in online banking offerings, but more important are the features within those options. The features are becoming more standard as time goes on, but you will quickly learn, for example, that not all bill pay services operate the same. Again, you will be looking for the right fit for you, but here are a few of the more common options and a few features to consider:

Online bill payment: Probably the most common reason people begin using online banking, but shop around – it is still not free everywhere! But it is free at enough good banks that there is no reason to pay for it. The biggest feature to be certain you understand is what is the actual payment processing flow? We will discuss this more in a moment.

Check / Debit card: This is likely a “must have” in today’s world, even if you are not doing online banking. Be sure you obtain a Visa or MasterCard debit card, because of the processing and fraud protection Visa and MasterCard offer. Without them backing the card, you may have difficulty using your debit card for certain purchases, and if the card is stolen and misused, your recourse will be strictly with the bank.

Money transfers: While you will find the flexibility to transfer money in and out of your online bank account, you will want to research each “to and from” option to be certain of the fees that may be charged (potentially by both parties). Also, be mindful of the schedule as well. These transfers are not usually done immediately, but often the deduction will be made on one day, and the deposit made the following day.

As mentioned previously, online bill payment is often the leading feature that attracts new customers to the wonderful world of online banking. However, not all bill payment services function the same way. Some are free; some are not, and it is the consumer’s responsibility to review and to thoroughly understand his or her online banking options. Some limit the number of payments per month; some do not. In addition to understanding what is included in the package, and what it costs, the main key is to thoroughly understand the process that takes place when you schedule an online payment. In essence, a lack of understanding one’s online banking options and how they work can result in costly errors for the consumer.

For example, some deduct the funds from your account on the day the payment is scheduled to be sent, others when the payment is scheduled to be delivered. Yet, others only deduct the funds when the payment is actually accepted or processed by the recipient. This can make a difference in when you schedule your payments, and you need to be aware of the process.

Additionally, the delivery time frames vary as well. For electronic delivery, online bill payment services offer anywhere from next day to three-day delivery, but those are “banking” days. For bill payments which your bank will be mailing a paper check, the lead-time is often closer to a week, but it is important to know when the check will actually be mailed relative to when you post the payment request. You will need to schedule payments early enough to avoid being late due to weekends and bank holidays.

Another benefit is the money you will save when you are no longer mailing all those paper checks. Multiply the number of bills you pay each month by the cost of postage, and if you have free bill payment service, you can already begin to see some savings by using online banking! You will also find that your box of checks lasts much, much longer!

It is likely that at some point, you will develop a need, or at least a strong desire, to transfer funds between financial institutions (for example, from your bank account to an investment account at a brokerage firm). If the money is in your checking account, you still have the option of writing a check and mailing it, or even utilizing the online bill-paying feature of your online bank. If the money is starting in your savings account, it just takes one more step to do an online transfer from savings to checking, assuming both accounts are with the same bank and linked.

Still, online banking provides a method which is generally more secure and timely, although this is one type of transaction that is often not free. This is referred to as an Automated Clearing House, or more commonly, ACH transaction. Many banks used to offer ACH transactions for free, since they are paperless wire transactions which involve little involvement by the bank staff. But more and more, they are charging in the range of $25 per ACH transaction! This is ironic, because the customer does most of the work!

It is more common these days to set up such a transfer, whether regularly scheduled or on-demand, as an online bill payment type of transaction, which bypasses the need for ACH transfers.

Lastly, a few words about fees; a consumer must understand all of the fees associated with his or her online banking account. This is another area that you want to seriously examine when looking into online banking. For one thing, many banks no longer charge ANY fees, but some still do. In my opinion, this is an untenable position for those who do charge fees, unless they are offering something very special to differentiate. For the budget-minded consumer, there is simply no need to pay regular recurring fees simply for using routine online banking and online bill payment. With a little shopping and research up front, you should be able to avoid or at least minimize fees for more exotic services like ACH transfers.

If you are beholden to a particular bank for whatever personal reasons you may have, and if they are one that charges fees for basic online banking services, it would be worth a phone call to ask if they will waive those fees. They know you have options, and they know many of their competitors are not charging fees, so they may be willing to waive them in order to keep your business.

Banks have been making changes to their fee structures over time, as well, and the general trend is to reduce or eliminate fees for the more basic services such as reviewing bank activity and online bill payment services. Check back periodically to see if new accounts are being offered a better deal, and certainly call and get switched at that time. Do not expect them to look you up to offer you a lower fee!

All in all, online banking has truly come within the practical reach of most people today. If you have not taken the plunge, I would strongly encourage you to try it out. If you are already using online banking, if you are not 100% satisfied, it would be worth while to use this information and do some shopping. Take the time to use the Internet as a resource and locate online banking institutions that will supply you with services that satisfy your needs as a consumer. Enjoy the cornucopia of options available today, and find one that fits you just right!