Who's your best banking buddy,
your teller or your PC?
Second in a five-part series: Tinsel or tarnish?
By Michelle Samaad • Bankrate.com

For a lot of people, online banking is the icing on their personal finance cake.

But while cyber-banking sounds like one of those labor-saving devices that comes along every now and then to help everyone, it ain't necessarily so.

Instead of just jumping at the chance to add online banking to your financial management repertoire, ask yourself some key questions first. Otherwise, you might finish up with a slightly tarnished doo-dad that actually makes your banking harder.

For example, if you travel a lot and don't have the time to write checks and pay bills, online banking can make your life a lot easier.

But if you're a worrier, even the remote chance that someone could break into your accounts should deter you.

Convenience -- and security worries
"The convenience factor is what drives most bank customers to online banking," says Jim Bruene, editor of the Online Banking Report, an industry newsletter based in Seattle. "And the ability to pay your bills online might be a close second."

Of the 40 percent of U.S. households with a personal computer, Bruene says 7 percent to 9 percent have been lured by the convenience, accuracy, timeliness and security of online banking since it took off in 1996. The latest Bankrate.com survey of online banking services revealed that 64 percent of 353 banks surveyed offer free online access. The banks that charge have an average fee of about $5.44 per month.

If your accounts are spread across several institutions or you write just a few checks a month, it may not pay to do your banking online. If you frequently use the automated teller machine to withdraw cash or transfer balances among your accounts, you should probably use a local bank with lots of local ATMs (not a cyberbank that doesn't have any). Otherwise, the heavy fees you pay when you use another bank's ATM will more than wipe out the benefits you find by going online.

On the other hand, if you have multiple accounts at one bank, a torrent of monthly bills and little free time, online banking may be exactly the right option. At the very least, it can save you time and add flexibility to your money management.

The downside of being online
The downside to banking by wire is the conditions that some banks and credit unions place to use their online services. For instance, it often costs $5 per month for the online bill payment service, unless you have direct deposit of paychecks or a large combined account balance.

Also, cash transfers between accounts might take a full business day to clear and account balances may not be up to date. While account histories may show the check number, dollar amount and date, the name of the recipient often will not show up.

The check's in the e-mail
But, looking at the other side of the coin again, float time -- the time between a check's presentation and its clearance -- is all but zapped away with online banking.

For Internet bill payments, you will probably lose the use of the money as soon as you click the mouse to pay the bill. With paper checks, there is often a lag of one or more days between the time a check is written and when the recipient receives it in the mail and deposits it, and your money stays with you during that time.

What, we worry?
On paper, the lures of online banking far outweigh the aversions, but for the non-Internet banking customer, the fear of someone breaking into their cyber-account keeps them offline. "It doesn't matter that banks explain in detail about secure socket layer encryption and how it supposedly keeps hackers out, some people just don't want to take the chance," says Linda Sherry, editorial director at Consumer Action, a privacy rights group based in San Francisco.

Still, online banking is surging. At the end of 1998 there were 6.6 million Internet banking households in America. By 2003 that number is predicted to skyrocket to 32 million.

The super speed of this expansion has become a concern. While no major security or business practice problems have surfaced, the federal government's General Accounting Office has urged federal banking regulators to keep a close watch on the development of online banking. The GAO is especially concerned that regulators have the capacity to head off problems before they arise and are able furnish guidelines to banks as they develop more and more online banking services.

From July1998 to July 1999, while 3.1 million people stopped using their online bank accounts, 3.2 million people opened electronic accounts, according to a recent report by Cybercitizen Finance, a division of online market researcher Cyber Dialogue, based in New York.

Why the coming and going? Fifty percent of the people who stopped using online banking said they found the sites to be too complicated or the customer service dissatisfying, says Michael Weiksner, manager of finance strategies for Cyber Dialogue.

Test drive before you buy
In the end, it may be worth it to take advantage of the free trial period many banks and credit unions offer to use their online service. By comparing online transaction activity with offline runs, customers can measure time, convenience and satisfaction and make the appropriate decision.

"The trial period is often a good gauge of whether you need the service or if you're better off sticking to what you've done for years," Sherry says.

Getting started online
Here's how online banking generally works: To go online, customers first must have a checking account and a computer with a modem, plus Web browsing software such as Microsoft's Internet Explorer or Netscape's Navigator. Next, customers need to either pick up a one-page application (usually available online) from the bank or have it mailed.

The application tells the bank who can access the account and which accounts are involved. Four to five days later, the customer will receive online software (if the bank doesn't offer Web-based service) in the mail, a personal identification number and a password.

In most cases, the software is free, but the monthly charge for online banking ranges from nothing to roughly $8.95. Most offer a free-trial period of about three months.

-- Posted: Dec. 7, 1999