Sound Mind Investing : Is It Time to Take Your Banking Online? / Part 1

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Is It Time to Take Your Banking Online? / Part 1

By Mark Dodge, MBA, AAMS, CWA

More than 50 million people currently use online banking, a huge increase from the roughly 14 million that were using it when we first wrote about the topic in 1999. Needless to say, the Internet and how people use it have changed significantly over the past several years. Back in 1999, online banking was a relatively new phenomenon with only a few major players. Now that most national and regional banks offer online services, it's time to revisit the online banking landscape to see what has changed.

• Where did this surge in demand for online banking come from? Younger people appear to be driving much of the increase, specifically Generation X (ages 28-39). As this group has entered the work force, they've brought their computer savvy with them into everyday life. Approximately 60% of Generation X has tried online banking.

Advances in technology have also played a key role. Broadband Internet connections have become much more prevalent in recent years. Not surprisingly, people with "fast access" to the Internet are twice as likely to use online banking, since it allows them to surf the web faster and with less hassle.

• What are the advantages of online banking? Saving time and money are the big draw. Paying bills is quick and easy in most online banking systems. Automatic payment of recurring bills can be easily setup, and variable monthly bills can be paid with the click of a button once you've set the payee up in the system. That beats manually writing checks and paying postage to send payments the old fashioned way. It's also easy to transfer money from one account to another, making it a simple matter to shop nationally for the best rates on savings and CDs. Additionally, most online banks offer online money tools (such as account aggregation and rate alerts) to help you manage your assets more efficiently.

• What does online banking cost? Not much. The cost of online banking is the same or cheaper than traditional banking. In 1999, online banking was considered an additional banking service, typically costing between $7-$10 per month. But these days, most major banks, as well as some smaller regional ones, offer online banking as a free service to their customers (although there might be a small monthly charge to download your data to personal software such as Quicken).

• What are the disadvantages of online banking? With online banking you lose the benefit of the "float" on your payments. Float is the time between when a check is written and when the money is deducted from your account. Long floats work to your advantage when you're paying, because your money can earn interest until the check clears. Online banking also presents a learning curve, which is largely dictated by your computer skills. It takes time to learn any new system, and it could take a little time before you're comfortable navigating your bank's website. Ultimately though, you'll likely save time by using online banking.

Next month, we'll look at "Internet-only" banks that don't have brick-and-mortar branches. We'll also discuss the safety of online banking, as that's often a concern. Hopefully, you'll then have the information you need to decide if online banking offers enough benefits to modify your banking habits.