Managing money Foolishly is like climbing a ladder. We take one step at a time, and only go on to the next step after our footing is secure on the first. Not to oversimplify, but I see three distinct steps: 1) pay off high-interest debt; 2) take care of near-term savings needs utilizing a money market fund; and 3) invest for the long term in stocks. No matter where each of us stands on this Foolish ladder, the ladder itself is most often propped atop a bank checking account. I've been experimenting with online banking for the past six months, and I've gotta tell ya, there's no going back to traditional banking once you've tasted the sweet convenience of managing your day-to-day finances on the Internet.
Let's talk about your money. You work. You get paid. Money is directly deposited into your checking account. Now you're ready to spend it -- on monthly recurring bills, at the grocery store, out to eat on a date, and hopefully sending a portion to either your money market or brokerage account. We all used to write checks for practically all of this stuff. Would anyone shed a tear if they never had to write a check again? Step into the world of electronic transactions -- for almost everything.
The bulk of your spending can be taken care of with online bill payment. This is the real beauty of online banking. Online bill payment allows you to set up a list of "payees," which includes ANYONE you send money to. It doesn't have to be an official merchant. For example, if you send $250 every month to your college-aged son, you can set him up as a payee. The same goes for your discount brokerage account. Set up Datek or Ameritrade as a payee, and you'll be able to quickly and easily send money to your stock account each month with the click of a button.
Setting up payees is as simple as filling in a mailing address, telephone number, and, if applicable, an account number. For major merchants, like American Express or your regional telephone company, the payee setup is usually automated so all you have to enter is your account number. Once you have your payees set up, all you have to do each month is enter in the amount and date of payment. For recurring bills, you can set up weekly, monthly, or quarterly automatic payments. Gone are the hassles of writing checks, licking envelopes, paying postage, and remembering to mail bills with sufficient time before the due date. Try this Bill Pay Tour to see how easy this process is.
Of course, online bill payment doesn't cover all of your spending needs. But there's no need to resort to those disgusting paper checks. For day-to-day spending, most online banks provide you with a handy Visa check card. Oh, but you say, "I always forget to write down what I buy!" So do I, but fret not, because Internet banking means you can log in to your account and check your most recent transactions with the click of a button. That way, you can update your checkbook whenever suits your fancy, say, once a week. If your checkbook is a disaster zone, online banking is for you.
OK, even with a Visa check card, we can't function electronically for all things financial. When you need cash, online banks still have the upper hand on traditional banks. Online banks allow you to access your cash from any ATM, and the better banks will refund a certain number of ATM surcharge fees each month. For example, AmEx Membership Banking will rebate up to four transactions per month. Wingspan Bank, a subsidiary of Bank One, will rebate ATM surcharges of up to $5 per month. So, as long as you keep your ATM withdrawals to three or four times per month, you can have the freedom to use any ATM you like without having to worry about the fees charged by whomever owns the machine.
The gravy on top of all this convenience is the interest you earn on your balances. The efficiency of Internet banking allows online banks to pass the savings on to you in the form of interest on your checking balances. And it ain't no piddly little 1% -- no way! I'm talking about 2.0-4.5% depending on your account balance. And since online bill payment allows you to safely hold off payment until the due date, you'll maximize the amount of money earning interest for you. Not bad, eh?
This brings us to the idea of maximizing your personal Flowie. The best Rule Making companies hold off cash payment as long as possible and maximize their cash balances. I propose that you and I should operate our personal financial management with the same lean, mean efficiency. And online banking makes it easy.
So, we've gone through the numerous advantages of banking on the Internet, but what are the drawbacks? There are a couple of minor inconveniences. One is that if you want to make a deposit for a pure online bank like Wingspan or NetB@nk, then you have to mail it in -- and you can't mail cash. Another inconvenience that I alluded to earlier is ATM surcharges. Again, several online banks will rebate a certain amount of these charges each month. The only other inconvenience I can think of is the limited availability of personal service. But if you're adept at managing your finances, then there's rarely a need for face-to-face help with a bank representative.
Are you ready to bank online? If so, you'll find numerous options these days, but let me offer my personal experience with a few services. Currently, I'm a happy customer of Wingspan Bank. No minimum balances, no monthly fees, free online bill payment, and attractive interest rates were the reasons I switched to Wingspan. Prior to that, I used Yahoo!'s Bill Pay for several months and was quite happy with the service, but I realized I could get online bill payment for free elsewhere. The Yahoo! service is great for individuals who want to keep their traditional bank, but add the convenience of online bill payment for a modest monthly fee. Other online banks worthy of consideration are AmEx Membership Banking, NetB@nk, and Bank Direct.
Finally, as a side note on online bill payment, you'll find that most of the online banks, as well as Yahoo!'s bill payment service, all run on Checkfree's back-end bill payment system. That means no matter which service you use, they all function pretty much the same way with easy payee setup and the ability to establish regular recurring payments. This might also mean Checkfree Holdings (Nasdaq: CKFR) deserves closer examination as a Rule Maker in online billing services.
For everything you need to know about online banking, check out the Fool's wealth of information on Personal Finance -- Online Banking. And to ask a question or see what other Fools are saying about banking on the Internet, drop by our Online Banking discussion board.
Bank Foolishly!
