Banking Online: The Bottom Line

You may feel you don't have the time to bank and pay bills the old-fashioned way: getting out your calculator and checkbook, a bunch of envelopes and stamps, and sitting down to work each month. If you've ever thought banking online might save you time, but don't know how to choose among the many competitors, CBS This Morning Money Editors Ken and Daria Dolan have some useful information.

Online customers are most interested in low fees, real-time information, detailed account information, and sophisticated security. With online banking, you can check your account balance, see which checks have cleared, transfer funds between accounts, apply for a loan, buy stocks, and pay your bills. It's technology at its convenient best.

Approximately 17 million households are expected to be banking online within three years. It is becoming increasingly popular for two basic reasons: cost and convenience.

Consumers are impressed with the convenience of 24-hour online banking.

But for the banks, there are enormous cost savings if they can convince their customers to transact electronically. Hundreds of banks are aggressively marketing their online capabilities because it's a lot cheaper to serve the online customer. On average, it costs the bank $1.07 for each transaction handled by a human teller. The same procedure handled online costs banks just one cent.

How does online banking work?
Online banking connects your computer to your account information at the bank, either through an Internet connection or through a separate service that dials the online bank directly.

Once you've filled out the paperwork to open an account, you can connect to the bank and do most of the tasks that would ordinarily be handled by a teller or a broker.

Most banks now have Internet sites which allow you to download a variety of account information and allow you to transact a variety of banking tasks.

How should you begin?
First of all, check with your bank and several other banks in your area to see if they have an online banking program. Most do.

Here are some questions to ask:

Does the bank provide online access to a variety of accounts including checking, savings, and credit? If it only lets you pay bills electronically, you're not getting full service.
Can you get electronic statements? You want access to recent account activity as well as the ability to review payments online.
Can you pay bills and write checks online? One of the most important features of Internet banking is the ability to send electronic payments for rent, mortgages, loans, utilities, and so on.
Will your payments be delivered by snail mail if necessary? If you're sending an electronic check to a person or institution that doesn't have an online presence, make sure that you can write an electronic check that your bank will send on to the payee via regular mail.
Can you transfer funds between acounts? If you have both checking and savings accounts, it's handy to be able to move money from one to the other, or to transfer funds from one of the accounts to pay a credit card balance.
What customer services does the bank offer? Who can you call if there's a problem, for example if an electronic deposit is not properly credited? Does the bank have a toll-free number for online support?
Does the bank provide links to your personal finance software such as Quicken Deluxe 99 or Microsoft Money 99? This is important if you are keeping track of your portfolio or doing budgeting. It gives you the ability to access banking information and directly input it into your personal software program.

What tools will you need to bank online?
If after doing your homework you decide that online banking is worth a try, you'll need a computer, a phone modem, an Internet provider such as AOL, and a software program (many banks provide the program for little or no charge).
The cost: $1000 or less will get all of the above.

Monthly fees for various online services also are charged by the banks, up to about $6.

If you are concerned about security, don't be. You're probably more at risk carrying your credit card and checkbook, which can be lost or stolen and misused with relative ease.

Although most banks claim that they are very much under control in using advanced encryption methods and passwords and PIN numbers, you may want to start online banking with a program that dials directly to your bank rather than one that gains access through the Internet.

One caution: service is not consistently good at all banks. The Dolans suggest you shop around for the services that you need at a fee that makes sense for what you're getting.

One Web site that you might find useful is Gomez Advisors, a research firm that gives a quarterly scorecard on e-commerce services.

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