smart spending

Storing financial files digitally

Highlights
  • Five most popular options each have pros, cons.
  • Online services provide virtual safe-deposit boxes.
  • Big-name vendors offering NAS drives.

When it comes to storing important financial documents, a tattered shoebox just won't cut it anymore.

These days, Americans are expected to save supporting documentation. Tax receipts, W-2s and credit card statements should all be kept for as long as seven years.

Failure to keep proper records may land you in hot water with the IRS. In fact, the IRS has even cracked down on charitable donations, often calling on donors to produce bank records or written receipts.

"Charitable contributions are a whole new ballgame now. You really have to be able to supply supporting documentation," says Robert J. DiQuollo, a senior financial adviser with Brinton Eaton Wealth Advisors in Madison, N.J.

Storing records digitally can also keep records from getting lost -- or falling into the hands of identity thieves.

Fortunately, there is no shortage of high-tech storage devices promising to help Americans turn their dog-eared bank statements into well-protected PDFs, Web-based files and CD-Rs.

But not all tools are created equal. Factors such as cost, capacity and ease of use differ significantly among today's storage options.

Here are some pros and cons of the most popular storage devices.

Digital safety
Five popular digital storage devices help keep financial documents safe.

1. Web-based storage services 

Online storage services aren't just for multimillion-dollar corporations anymore. These days, there are plenty of services promising to help the average American store, backup, organize, access and share financial files and folders.

Backblaze, Xdrive, Carbonite and NovaStor. These services allow users to back up all of their computer files, including everything from electronic tax records to documents that have been scanned onto a hard drive. The cost is as little as $5 per month. Some services will even let you store a few gigabytes worth of files for free -- more than enough to hold some important documents.

Even financial institute Wells Fargo has jumped in the game with vSafe, a service that can store any file format, from Word documents to video files, for a modest monthly fee.

"All of these online services are, in fact, digital, virtual safe-deposit boxes for your important documents," says Greg Schulz, president of the Stillwater, Minn.-based consulting firm StorageIO Group and author of "The Green and Virtual Data Center."

While these Web-based services eliminate the threat of hard-drive crashes, virus attacks and natural disasters, there are shortcomings. For starters, as with any Web-based service, don't be surprised if you encounter the occasional connectivity hiccup. Also, don't expect it to be lightning fast, says Thomas Jablonski, president of Nemo's Computer Service Inc. in West Palm Beach, Fla.

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Privacy is another concern surrounding online storage services. After all, data traversing a public network such as the Internet is exposed to all kinds of vulnerabilities, from ill-intentioned intruders to information that accidentally ends up lost in transit.

"There are security concerns regarding how an online storage service provider moves your information from one place to the next," Schulz says. "That's why it needs to be encrypted, secure and protected."

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