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deposit your paycheck, or filling out forms to transfer money from your checking account
to your savings account? Technically, you don’t have to. The advent of ATM machines,
electronic deposit, and telebanking took some of the hassles out of managing your money,
and online banking is eliminating even more of the barriers that sometimes separate you
from your money. Banking online, or e-banking, allows you 24-hour
access to your accounts: you can monitor your balance, find out whether checks have
cleared, and transfer money between funds, all from the comfort and convenience of your
home computer.
Types of Banks Online
Not all online banks are created equal; some only allow you only to
view your accounts online, while others allow you to make payments and transfers. A report
by Meridien Research estimates that of the U.S.’s 11,000 banks, only 400 allow
customers to manage their money completely online. There are even fewer banks online which
cater to business clients.
There are basically two types of online banks: traditional banks that allow online banking
and strictly virtual banks. Many traditional banks and credit unions including Bank One
and the Bank of Yazoo City, have taken it to the 'Net and are offering online banking
services. The advantage of choosing a traditional bank that offers online banking is that
you can make your deposits and handle disputes in person if you want to, rather than over
the phone or via email. Traditional banks with online services can also be a good choice
for people who are comfortable with checking balances online but feel uncomfortable
sending their money zipping through cyberspace.
Better rates and lower fees are two of the incentives that strictly
virtual banks offer to their customers choosing to go totally virtual. One bank, X.com,
has even paid people to sign up for their banking services and offered referral bonuses
for people who could convince their friends to sign on. Online banks are able to offer
these incentives and provide extended customer service, because they don't have the
expense of maintaining showy bank buildings, branch offices, and ATM machines. Several
online banks, including X.com and Wingspan.com, offer a wide range of accounts, including
high-interest CD's and mutual funds, to or from which you can transfer money into or out
of with the click of a mouse.
Advantages
Customers aren't all created equal either, and different customers
will have different reasons for choosing to bank online. Jim Bruene, President and CEO of
the Online Banking Report, says that the advantages of banking online range from
enormous to zero depending on the user. He points out that "advantages increase as
the user's financial picture grows more complicated." Some benefits of banking online
are:
- Time savings. You won’t have to make trips to the bank or wait in
line.
- Money savings. Most online banks pass their cost savings on to the
consumer in the form of lower fees or higher rates. For instance, X.com rebates up to $6
of ATM fees every month.
- More control over your money. Many online banks allow you to transfer
funds into and out of accounts at your convenience. Some even offer you the option of
purchasing CD's online; and several, including X.com, are planning to offer brokerage
services in the near future. With that added control comes . . .
- Peace of mind. Now you can track your money 24 hours a day. You'll
always know when a check has cleared and can reconcile your checkbook any day of the
month.
Disadvantages
Nothing is perfect and online banks are no exception. Although some
of the perceived disadvantages aren't important to some people, for other people the
disadvantages of banking strictly online far outweigh any possible benefits. Some of the
disadvantages are:
- The need to deposit checks by mail. Some online banks let you transfer
funds into and out of accounts at traditional brick-and-mortar banks. But if you choose to
bank strictly online, your deposits, ironically, will be at the mercy of the postal
service.
- Longer setup times. When you open an account at your neighborhood bank,
you fill out the paperwork, make your deposit, and sign your signature card all at the
same time. However, if you're choosing a strictly Internet bank or a bank without local
branches, you'll have to wait for your signature card to arrive in the mail and then
return it before you can begin writing checks on your new account.
- More ATM fees. Busy people who use their ATM cards to get fast cash, may
find themselves paying more ATM fees to other banks if they choose an online bank or one
without a local branch. Banks such as X.com realize this is a disadvantage to
banking online and will refund all or part of your monthly ATM fees.
- Reluctance of local merchants to accept your checks. Some merchants,
especially in smaller towns, may not accept an out-of-town check or one with only a
dot-com address.
Security
E-commerce in general has taken a beating in recent days and many
consumers are afraid to trust their money, their credit card numbers, or other sensitive
information to the ethers of cyberspace. It didn't help matters much when it was
discovered that X.com customers were making withdrawals from other people's bank accounts
because the bank wasn't requiring customers to send in voided checks to verify their
ownership of accounts.
However, experts agree that online banking is at least as secure as real
-world transactions. It's important to realize that even if you don't bank online, your
bank transfers money electronically all the time. One way that online banks protect your
sensitive information is by encrypting it before it's sent through cyberspace. Encryption
basically means that your information is scrambled before it is sent; then it’s
decoded and processed when it reaches its destination.
Strictly Business
While the majority of online banks are set up to handle the needs of
consumers, several recent arrivals to the online banking scene are catering to business
customers. They offer online bill payment, and credit-management services, and can even
function as go-betweens for buyers and sellers.
Dallas-based Banking B2B offers
online companies the opportunity to apply for, receive, and manage lines of credit all
from the comfort of their laptop. In addition, Banking B2B recognizes that in the virtual
world, some businesses will be dealing with clients that they don't even know in the real
world. To offer both buyers and sellers a measure of confidence, Banking B2B plans to act
as an intermediary for their clients and offer credit verification to new trading
partners. They will also allow customers to manage their own accounts 24 hours a day.
Customers will be able to make withdrawals or payments on their Banking B2B credit lines,
make payments to vendors, and complete payments, all online.
Another entry into the business-to-business banking arena is USA BancShares, which will provide FDIC-insured
banking services, stock brokerage services, and customized financial packages for
business-to-business clients.
Other banks offering special services for business customers include Sun Trust, First Citizens Bank, and Bank of America.
Finding the Online Bank that's Right for You
No one single bank can be all things to all people and it's
important that you find a bank you feel comfortable with. If you're lucky, your current
bank offers online banking. But if it doesn't and you're shopping for an online bank, the
following questions can help you find the online bank that's right for you.
- Are they strictly online or do they offer brick-and-mortar branches as
well? This is a matter of personal preference; some people feel comfortable with handling
their money all online, while others need the security of a bank that they can visit on
occasion.
- How are disputes handled? If you'll be banking strictly online, it's
important to find out what the estimated turnaround time is for emails and how long
you'll have to be on hold if you need to phone in a complaint.
- Are they secure enough? You should feel comfortable with the bank's Web
site. Check to make sure that secure areas are password-protected and are considered
labeled secure documents. Netscape
® indicates
secure documents by locking the padlock on the lower left corner of the browser window,
and Internet Explorer® shows the security status of a document in the lower right hand
corner.
- Are they federally insured? Banks are required to be federally insured by
the Federal Deposit Insurance Corporation. To find out if the bank you're considering is
federally insured, visit the FDIC's Web site.
- What are their fees? Before you sign up for an account, make sure you're
notified of what monthly fees are, and what miscellaneous fees, such as returned check
fees, apply.
Fortunately, online banks can easily be researched with a few clicks of
the mouse. Gomez.com, The Online Banking Report, BankOnline, and Financials.com
all offer reviews and links to banks doing that do business online.
The Future of Banking Online
Our delight in instant gratification means that online banking, like
online shopping, is here to stay. But is it likely that virtual banks will every replace
their brick-and-mortar cousins? Bruene doesn’t think so; he believes that online
banking "will be a part of every bank and every bank account, a tool, like the
telephone or ATM "...but "the total square footage of bank branches will
decrease and the two models will merge into ’bricks and clicks’."
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