There are plenty of benefits beyond skipping the whole check- writing ritual. Online banking is getting easier, cheaper and more efficient. (Safer, too: Online bill payers are 10 percent less likely to have their identities stolen than paper pushers, according to Javelin Strategy & Research.) Most banks offer their online services free of charge, so customers can dabble before they are hooked.
But hooked into what? There are pitfalls. Until you get the timing right, you might overdraw your account. Errors can occur, though they are rare. If you pay online, switching banks can be more of an ordeal. And yes, there’s that little matter of giving up your float to the bank. Here’s how to manage your bills electronically without getting shocked.
A matter of timing. The biggest surprise for most online customers is how quickly the money is deducted from their accounts when they pay a bill, says Linda Sherry of Consumer Action. This can cause big problems for people who normally write their checks and count on having a week before they deposit their paychecks; you can’t play the float anymore. Get in the habit of tight money management and it can work to your advantage. You can wait until the day before your credit-card bill is due, authorize an online payment, and know it will get in on time. You’ll never pay another late fee.
Whose float is it? To some people, it’s a distasteful reality of online banking: the bank can make money on your money. Most banks pull cash out of your account on the day you tell them to pay a bill, even if they then move the money to their account, write a paper check and send it in the mail. This can cost you more than a week of float on your money. That’s more of an emotional issue than a financial one: At today’s interest rates, you have to lose two weeks’ float on more than $3,500 just to make back the 37-cent stamp. “The equation usually works out better to use online bill-pay,” says Tower’s George Tubin.
How convenient. Some bill-payers skip the free services and pay extra to bank through a third-party service like Yahoo ($4.95 a month for 12 payments) or Quicken ($9.95 a month for 20 payments.) Why would you do that? These services claim they can integrate all your accounts into one service. So if you regularly pay bills out of a checking account and a money-market account, or move money between your broker and your bank account, you could do it all at the same site. And you can switch bank accounts without having to re-enter all of your payees, addresses and account numbers. Folks who are addicted to Quicken software can just pay their bills from the program; the record-keeping and bill-paying are seamless.
Be demanding. Some banks and services offer more features than others. Choose one that offers automatic monthly payments, alerts if you’re going to be late on a bill and full histories available online, says Raj Dhinsa, a senior analyst with Jupiter Research. Most banks and services now offer guarantees that they will pay late fees if mistakes are made, so make sure your service offers this. Finally, look for an online bank that can collect your bills and present them online. With bills out of the equation, just think how much fun getting the mail will be.
