The Truth about Online Banking

Recent reports that one-third of the nine million people who have tried online banking had ditched the service were certainly surprising. After all, online banking promises the ease and convenience that we all crave. Or does it?

Money magazine recently assigned a team of reporters to find out just how business was done at 23 online banks. The glitches soon become clear. Opening an account often took more than two weeks, and some services were far from perfect.

Take electronic bill paying. For many of us, the concept of paying bills in the middle of the night is singularly thrilling. A few clicks of your mouse and the ball is in the bank's court. Trouble is, only a very small number of companies are set up for submitting bills or accepting money electronically. That means to pay your creditors' bills, your online bank may have to withdraw the money from your account, put the money into its own account, and then write out a check from that account and put it in snail mail. The crazy result? It can take 10 days to 2 weeks for your payment to arrive.

Then there's the question of accountability. Not all banks email you to let you know when they've paid your bills. So you might think your mortgage bill has been taken care of when it hasn't. What's more, you won't find out until your mortgage lender sends you an arrears notice.

There's yet another headache. Most Internet-only banks, those not connected to a brick-and-mortar bank, do not have ATM networks. Customers must pay a fee to use any ATM. Some banks will credit you the amount of the fee, but most require that you mail in your crummy little ATM receipt to get it. As for deposits, most online banks require that you use snail mail.

Now for the good news:

By now, you may be wondering whether online banking has any advantages. Well, it does. Keep in mind that two-thirds of those 9 million users have been happy enough with their bank to stick with it. One big advantage is the money you can earn on a Web-only checking account. Web-only banks do not have high overhead costs and can afford to pass some of their savings to their customers. Few traditional banks pay more than 1 percent interest on checking, but online banks pay 3 to 6 percent. Ah. Suddenly the hassle of banking without an ATM network begins to look a little different.

So if you're interested in a Web-only bank, it makes sense to shop for the best interest rates. As for the ATM situation, several of the larger online banks, such as Citibank, American Express and Wingspan, have large ATM networks and give customers credit if they have to use ATM machines outside their networks.

As for the trouble with electronic bill paying, help may be on the horizon. A number of special online bill-paying services, including, and, can make things go more quickly. Here's how the service works. You send your bills to one of these companies and give them permission to remove payment for your bills from your account. The company will scan the bill when it arrives, post it on its own Website, send you an email to confirm, then withdraw the money from the account and send it electronically to your creditor. If the payee can't get paid electronically, the service will debit your account and directly pay the creditor with a printed check. Of course, the success of this system requires that more and more companies accept electronic payments. No doubt they will all move in that direction -- someday.

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