Online Banking

t's a chore you perform every month: Paying the bills. You can either write checks and keep records in a checkbook, or you can choose to go online and rely on what the Internet has to offer. Which do you find more convenient and less time consuming? And what distinguishes the bank around the corner from the one you never see?

When it comes time to choose a bank, do you want bricks and mortar or cyberspace? While direct deposit of paychecks is a quick and safe way for you to get your family's salary on time and allocate it between savings and checking, when it's time to pay bills there are several options.

Write a check and stamp the envelope; input your bills online either to your e-bank or to an independent bill paying service and press "send"; or arrange for monthly electronic debits for anything from mortgage payments to life insurance premiums, student loans to mutual fund accounts. Your local phone company, electric utility and major credit cards like VISA will, if you prefer, automatically debit each month's bill.

Do you want or need those electronic capabilities? Even as banks tout 24-hour real-time accessibility, when was the last time you wanted your checking balance at 3 am? If that's the only "free" time you have, then online banking may be helpful to you, particularly if you use personal finance programs like Quicken and Microsoft Money, which are also great for breaking down expenses by category, monthly or annually, and tabulate your expenses easily and accurately.

However, if you and your spouse have agreed on a household budget, money is tight, and you are the designated bill-payer, consider the following: When salary and expenses vary monthly, I suggest a hands-on approach. (For fixed payments, like a mortgage or direct investment in a mutual fund, automatic payment, known as electronic funds transfer, is great; for variable expenses like a credit card or phone bill, I think not.) Checkbook ledger addition and subtraction may be low tech, but may help make you aware of funds previously spent unconsciously. To control your cash flow, you need to pay attention. So does your spouse.

If you're on a tight budget, the psychological distance you get with online banking doesn't give you a real sense of where your family stands financially. With cyberbanking, money can become ethereal.

Studies have shown that people who conduct cash-only transactions spend only three-fourths of what people who use charge cards for all their transactions spend. I suspect there is a similar correlation between online checking and credit cards vs. cash and check registers.

And online banking has yet to be a huge success with consumers. According to a Smart Money report, New York-based Cyber Dialogue found in a 1999 study that one-third of U.S. adults who gave online banking the go-ahead subsequently dropped the service, citing complications and dissatisfaction with customer service. (Only 11% who signed up for online investment trading have cancelled.)

The average fee for each household to maintain a checking account is $200 and rising. There's a lot of room in there to economize, simply by scrutinizing your statement and every fee listed on it: ATM or debit card costs per use, bounced checks, below-minimum balances, overdraft protection, cancelled checks and the like.

Then, determine if your bank is the most economical, efficient and convenient for you. How high are the fees? What is the best bill paying strategy? How personal do you want customer service? How many no-cost ATMs are nearby? Remember, you can mail in deposits as well as process them at an ATM, whether to an online or brick-and-mortar bank, if getting to the bank is time-challenging. What other services do you require?

Compare banks, bricks or virtual, to determine not only which ones pay the best interest rates (on savings or CDs; interest-bearing checking accounts aren't usually worth it) or decide what features are more important and how inexpensively you can find them. For some virtual banks, bill paying is a separate feature of a checking account, with service charges involved, just as there are fees at a brick bank.

In any event, payment is not instantaneous: you must allow five business days between entering the payment and its due date. In other words, you need as much time as if you were using the postal service.

Small community banks and credit unions are more likely to favor the individual customer than large money-center banks like Citibank or Bank of America. The rates are better, free checking has a much lower minimum ($500 and under), and you are more likely to get personal service from a human who knows you than a customer service rep at an 800 number. You also have a better chance of developing a relationship with a bank lending officer who can help you through the mortgage maze or other banking puzzles.

Any bank account should be insured either by the FDIC (Federal Deposit Insurance Corp., up to $100,000 per person) or the National Credit Union Administration. This guarantees that if your bank happens to fail, you won't lose money in your basic checking, savings and CD accounts.

Some households prefer to consolidate everything - from checking to savings, IRAs, credit cards, mortgage loans and the like - at one bank; others shop around for the best deals on each particular item. Useful Web sites to compare and contrast bank fees and services include http://www.gomez.com and http://www.bankrate.com, which recently published its Checking 2000 Special Report--the good, the bad and the ugly update on banks across the country.

There's also the question of joint vs. separate accounts. If you're not the family wage earner, you're probably best off with a joint account, regardless of the type of bank you choose.

If you're comfortable communing with your computer, an ISP and no physical records of checks you have paid (I don't know where the IRS stands on this issue), then cyberbanking may be for you. If not, stick with Quicken, Microsoft Money, pay-by-telephone or haul out the checkbook and pay bills manually. These days, you don't even have to lick the stamp.

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© 1999-2005 Nancy E. Frank, used by permission.