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Should you bank online?

Mobile banking app and credit cards on keyboard © Oleksiy Mark/Shutterstock.com

Should you bank online? For some, Internet banking is all the rage.

For the first time, more consumers prefer to do their banking online rather than at a branch, an ATM or over the phone, according to a new survey by the American Bankers Association.

"This marks a watershed change," says Nessa Feddis, senior counsel for the bankers' trade group. "It tells us that ... more consumers prefer the speed and convenience of conducting their banking transactions on the Internet."

But banking online isn't for everyone. Before logging on to a computer to do your banking, it's important to weigh a few important considerations, banking experts and industry observers say.

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Convenience vs. service

The decision about whether to bank on the Internet or at a traditional, brick-and-mortar location often comes down to a person's "psychographic" profile, says Adam Isler, client services director with PNT Marketing Services in New York.

Isler gathers and analyzes "customer intelligence" data for banks. He says electronic bank accounts typically appeal to people who want the flexibility and convenience to do banking anywhere, anytime.

On the other hand, other people want the customer service offered at a bank branch, or fear their sensitive financial information could be stolen online. Such conservative customers often stick with brick-and-mortar transactions.

"Anybody that prefers that personal touch, that's what a community bank trades on," Isler says.

Greg Meyer, a community relations manager for Meriwest Credit Union in San Jose, Calif., switched to online banking 14 years ago when California Federal Bank launched Internet banking.

Today, he has online savings accounts at three banks. He relishes the time he saves by paying all bills online.

"I don't write a check to any organization," says Meyer, who has worked 30 years for financial institutions.

After all these years of banking online, Meyer still has concerns about identity theft in cyberspace. He urges customers to make sure they install reputable antivirus computer software.

"It's a small price to pay for the personal protection of your money," Meyer says.

Internet-only banking

While many brick-and-mortar banks offer an online banking option, other banks exist only on the Internet. Such Internet-only banks appeal to customers comfortable with technology who do not feel the need to visit a brick-and-mortar location.

"As more of the banking public (includes) people who grew up in a digital environment, the need for brick-and-mortar banks will be less," Isler says.

Customers willing to restrict their banking to an Internet-only experience earn certain perks. For example, interest paid on deposits at Internet-only banks typically is higher than it is in accounts offered by more traditional banks.

On the other hand, customers of Internet-only banks may have to sacrifice some conveniences. For example, online-only banks typically have a limited ATM network, making it more difficult to quickly access your money. Internet-only banks also may not offer home or business loans.

And of course, some customers shy away from Internet-only banks because they want higher levels of personal service and feel more comfortable with a bank that has built up a solid reputuation over many years, Isler says.

"For some people, there's a certain cache in being a customer of a respected (brick-and-mortar) bank," he says.

Because Internet-only banks are not practical for depositing or withdrawing cash, many online customers maintain checking or savings accounts at traditional banks and transfer money to and from their Internet-only accounts.

Cindy Richards, editor of TravelingMom.com in Oak Park, Ill., is among those who use online and brick-and-mortar banking.

She likes the convenience of doing her banking online at odd hours. But she and her husband also rely on a local bank for business loans and savings accounts for two teenage children.

"It's nice to walk into a bank and somebody knows who you are," Richards says.

Safety and security

Security is a major issue for Internet-only banks and more traditional banks that offer an online banking option.

The No. 1 tip for safe online banking is to confirm that deposits in an e-bank are insured, according to the Federal Deposit Insurance Corp. Check the online bank's Web site for a prominent note saying "FDIC-insured" or "Member FDIC," and verify this information on the FDIC's Web site.

The FDIC also recommends using a private password to access an online bank account, securing your computer with antivirus software and reviewing the online bank's customer privacy policy.

More than 2,600 active Web sites use the practice of "phishing" to try to gain access to personal financial data, according to the FDIC.

Phishing occurs when scammers send e-mails to people in an attempt to dupe these customers into disclosing account information. The e-mails usually appear as if they are coming directly from the customer's actual bank.

However, banks never send customers e-mails asking them for personal data. Anyone who gets this type of e-mail should assume it's counterfeit and delete it, Meyer says.

"The simplest way to prevent fraud is (by) deleting e-mails requesting your personal information from a bank," he says.

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