Current account guides

Internet banking - what’s the deal online?

Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

Online Banking has now overtaken social networking in popularity, but what are the advantages and disadvantages of managing your money on the internet? (Updated 3/7/09)

Oh the times they are a-changing. Pretty much every high street bank now offers an online service, and online-only banks like Smile and Cahoot are growing in popularity.

The technological efficiency of online banking certainly benefits banks as online services are much cheaper to run than branches, but online banking is also revolutionising the consumer experience. Imagine not having to queue during your lunch hour, not having to rush to the bank before it closes and having the freedom to make transactions wherever and whenever you like. Internet banking is certainly attractive, but what are the risks?

In this guide we will look at the pros and cons of managing your money online.

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• Advantages
• Disadvantages
• Avoiding fraud
• How do I set up an online account?
• What’s available?
• Recommendations

Advantages

• Functionality - Just like any account, you can use your online account to view your balance and statements, transfer funds between accounts and pay your bills. You can also manage your direct debits, standing orders and prepayments online.
• Convenience – This is probably the most attractive feature of online accounts. Restrictive banking hours are not an issue when you can access and manage your cash 24 hours a day, 365 days a year, enjoying ultimate flexibility.
• Great rates - Online accounts offer some of the best rates on the market. Choosing to bank online can often get you better interest on your current account and savings and cheaper overdraft facilities.
• Control - Online banking makes it easy to see exactly where your money is going, and some people find that online banking makes them better at managing their finances. Because of the ease of transferring funds between accounts, you should be able to make your money work harder for you. Switching your spare cash to a high-interest savings account will maximise returns.
• Budget - Many banks will let you access or download all your old statements and transactions, which can be incredibly useful for budgeting. Depending on the bank, you may be able to import your account information directly into spreadsheets and accounts systems.
• Speed - Online transfers are becoming faster and faster. Same day transfers are being rolled out this summer which means that soon even more internet payments will be processed in a matter of hours rather than days.

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Disadvantages

Obviously, if you choose an account which is only accessible online, then you will miss out on all the fun of face-to-face customer service in branches. No more joking with the cashier, no more sympathetic looks from the manager and no more sing-a-longs in the queue. Sad days.

However, what most people will worry most about when opening an online account is the security risk. The question is, are these accounts safe?

Well, the banking industry does invest millions of pounds each year in systems designed to protect the customer from cyber-fraud. For example, the latest security measures that have been brought in involve supplying customers with their own personal chip and PIN card readers which offer remote card authentication. Banks are continually stepping up security measures and until recently would have refunded any money lost from a customer’s account through online fraud.

However, there has been great debate about the extent to which banks should be liable for losses caused by online fraud, particularly if the losses are a result of carelessness by the customer. Changes in the Banking Code last year re-affirmed a policy that makes online banking customers responsible for losses if they do not have up to date anti-virus and spyware software as well as a personal firewall installed on their computer. The code reads, “If you act without reasonable care, and this causes losses, you may be responsible for them”.

This is a grey area however, as “up-to-date” is not clearly defined in the code and indeed, one of the main selling points of online banking is that you can use it anytime, anywhere – but clearly this code suggests you must only access your account from your own personal computer over which you have control. It is unclear to what extent the code will be applied, but whether you are banking online or not, installing anti-virus and spyware software as well as using a personal firewall is certainly a good idea.

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Avoiding fraud

As well as installing anti-virus and spyware software and using a personal firewall, following these tips will further help you avoid fraud:

• Learn and destroy your PIN and password – never write these down.
• Use strong passwords (containing letters and numbers) and don’t use the same password for every website.
• When on your banking site, always ensure that the beginning of the bank’s internet address has changed from “http” to “https” and that there is a padlock symbol displayed– this signals that the site is secure.
• Always treat emails with caution, especially those that ask you to reveal personal security details - never ever email anyone your password or PIN.
• Never access your online account via a link contained in an email – always type in the URL yourself or save the site as a favourite.
• If you have any doubts about an email or think that you may have revealed personal information to a fraudulent site, contact your bank immediately.
• Never leave your computer unattended when logged in to your online account and always ensure you are logged out properly when you leave the site.

One of the most common fraudulent practices to watch out for is Phishing. Basically Phishers will send you an email (purporting to be from your bank) that will ask you to click on a link to confirm your personal details. You will then be directed to a fraudulent website and any details you enter will be captured and may be exploited by criminals. These emails can look very convincing and have been incredibly successful.

They often use scare tactics, for example claiming that “Your account will be frozen until you confirm your password”, but you must not fall for these ploys. Banks will NEVER email you asking to “confirm” or “update” any personal information by clicking on a link and visiting a website. Phishing has grown massively over the last few years and you should always be on your guard against any email that requests personal information.

For more information on the dangers to watch out for, take a look at the UK Banking Industry’s Bank Safe Online website (www.banksafeonline.org.uk), the Global Anti-phishing Working Group website (www.antiphishing.org/) and the Home Office’s Identity Theft website (www.identitytheft.org.uk/).

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How do I bank online?

First, decide whether you want an internet-only account or a branch-based account which you can also access online. Internet-only accounts do generally offer better interest rates, however a branch-based account gives you the reassurance that you can pop into your local branch if you do have any problems.

• If you want to open a branch-based account then you can either visit your local branch or apply online.
• If you want to open an online only bank account, apply via your bank of choice’s website.
• If you already have a regular bank account and you would like to be able to access it online, give your bank a call. They will probably send you a verification code which will allow you to set up online banking.

Once your online account is set up, you will be able to access it and perform transactions simply by visiting your bank’s website and logging on using a secure password.

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What’s available?

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Recommendations

Online banking is definitely a modern convenience, giving you ultimate flexibility to bank whenever you choose. Plus, the fact that you can access your statements with ease and see clearly what you have spent could definitely help you budget more wisely. There are minor security risks, but the key is to take the necessary precautions and keep your wits about you – don’t let the phishers reel you in!

These days it’s really easy to switch accounts, so check what offers are available and don’t feel you have to stay with one bank.

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