Six Questions to Ask Before You Bank Online
If you aren't intimidated by the Internet, banking in cyberspace can save you time and money.
Perhaps the biggest allure of online banking is its convenience. You can access your checking, savings and investment accounts while sitting in your bathrobe at sunrise. Also, you can transfer money between accounts, check on balances and pay bills electronically at midnight, if you like.
You also may be able to save money. To attract customers, some banks are offering cut-rate prices -- providing the service free or charging just a nominal fee. Typical fees average $3.95 to $6.50 a month for a basic online banking service package. This may save you money when you factor in the value of your time, as well as the cost of checks, envelopes, and stamps.
According to an Fall 2002 study by Bankrate, an online publisher of personal finance information for consumers, the average yield on an interest-bearing Web account was 1.51 percent. Not much in the low-interest-rate environment, but it's still three times as much as the .57 percent average yield for offline interest-paying checking accounts.
Bankrate.com offers ratings of online banks.
Before signing up for online banking, though, understand there are two types of banks you can use online. First, there are Internet-only banks. These banks don't have branches that you can walk into if you have a problem. They offer 800-numbers and online help, but you can't visit a teller. You have to make deposits electronically or via snail mail. (Because they've streamlined their operations and don't have to operate from multiple locations, these Internet-only banks can usually offer cheaper services than other banks as they pass on their savings to consumers.) If you're not comfortable with the Internet-only option, you can choose the online services offered by the traditional banks you see on Main Street, such as a Citibank. Here, you have a choice between visiting a teller or visiting the bank's Web site. These institutions offer the conveniences of Web service and 24-hour banking, but you can still see a banker in the flesh if you have a problem. After you decide which type of bank you'd like to try, ask the following questions:
How much does it cost? The core electronic banking service may trigger one monthly fee, while an electronic bill-paying privilege could result in another.
How easy is it to set up? Ask for the instruction manual to see if setting up an online banking account is something you can do without much hassle.
How quickly will my bills be paid? If you pay your phone bill by computer, the cash may not be transferred instantly. At some banks, this process could take several days.
What happens if I goof up? Suppose you're paying bills at midnight and you inadvertently pay the mortgage twice. Find out if the bank will correct the error quickly and whether you will be charged for fixing the mistake.
Can I close an account easily? Switching from one online bank account to another may force you to buy new personal finance software and require that you transfer a lot of data.
How secure are my online transactions? You don't want an outsider in cyberspace privy to your finances. Ask how your bank uses encryption to protect the security of its online bank accounts.
