FOOL SCHOOL
Pros And Cons Of Online Banking

October 27, 2003

So why bank online? More control of your money for starters. It's so much easier and cheaper to transfer money, pay bills, apply for a credit card or shift your savings into a higher interest account. No queues during your lunch hour, no rushing to get to the bank before it closes and certainly no worries about dealing with pressing transactions at ten o'clock at night if you feel like it. You can do it all from the comfort of your PC.

At the end of 2002, BACS reckoned 7.8m Brits were banking online. That's double the number that were banking online three years previously. Although many people just like to check their balance, increasing numbers are using online banks to make payments as well. In fact, we made 72m online payments in 2002, mostly to pay credit card bills.

Most of the services currently available let you monitor your account and conduct much of your business 24 hours a day, 365 days a year. Actually, if we're going to split hairs, then this is a bit of a fib. Even some of the "open all hours" services close for an hour or two in the dead of night, so if you like to shuffle your money around when the rest of us are asleep, take care whose service you use.

However, the benefits of being able to track and manage your finances online are very real. And by making it easy for you to move money between accounts, you should be able to make it work harder for you by keeping more in higher-earning accounts. After all, you can now use the Internet to find the best rates on savings, cards and loans etc. any time you like.

As it costs banks less to run online services you're more likely to benefit from much lower overdraft charges (as much as half the rate of ordinary banks), as well as earn impressive rates of interest on surplus funds in current accounts. At the moment, you can get in excess of 3% on some online accounts, whereas a typical branch-based account pays a miserly 0.1%.

And the beauty of it is that it's comparatively easy to switch things around if charges go up or rates fall. It's usually very simple these days to open an account online. You just log on, answer the various questions, provide a password and print off the completed form for signing. If you can't print it off, they'll do it for you and fire it off to you in the post. A real signature is a legal requirement so you will have to put pen to paper in the early stages.

So what are the disadvantages of banking online? Obviously there may be times when the bank's system crashes and you're unable to access your account. This was fairly common a few years ago, but it seems to happen very rarely nowadays. There are security concerns too of course. There have been occasions when account details have revealed online. Again, these are fairly rare and the banks usually compensate people for any losses they've incurred.

The main concern at the moment is e-mail scams, with hackers posing as a major bank and asking for key account details, sometimes via fake websites (this is known as phishing). Needless to say, never ever reply to one of these e-mails, should you be unlucky enough to receive one. We'll look a little closer at how secure online banking is later on this week.

Compare online accounts in our banking centre.