Online or High Street? (High Street or Online?)

Name: mdp97jes

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Product:	High Street or Online?
Date:	23/12/01 (130 review reads)
Rating:

Advantages: save time, available 24 hours a day

Disadvantages: need internet access

Online Banking

It's now possible to do your banking in lots of different ways including by post, by telephone, and online. In addition, many traditional banking tasks can be automated, for example by setting up direct debits.

This article is meant to give you an introduction to banking on the internet and how it may be able to save you time and energy. It also aims to dispel some of the fiction about hackers that some sections of the media like to report with glee at regular intervals. However, it is not meant to give you information about specific bank accounts, recommend a particular bank, or tell you where the best deals are. For this information I recommend the personal finance pages of the Sunday papers, or the numerous magazines (and internet sites) available on the topic. I will however refer to specific examples from my own experience.

Security

First, to dispel those myths. There is no reason why banking online should present any more of a threat to your hard earned money than banking by other means. Almost all banks offer protection against online fraud to their customers, in much the same way as if your bank cards had been stolen. In fact the protection is higher since you won't be liable for any of the losses. Hundreds (thousands?) of people are mugged or burgled every day, and these don't make the headlines in the same way as the occasional internet fraud - it just doesn't sell newspapers. If you decide to do some of all or of your banking online, you need to have confidence in the process otherwise you may as well stop reading now. However, that doesn't mean you should be lax, and just like you wouldn't give your ATM pin number to a 'bank official' that rings you up out of the blue, the same should apply to your online banking details.

Two routes to internet banking

There are essentially two approaches to starting doing banking on the internet. The first is
to start using the online facility offered by your traditional high street (or telephone) bank. The second is to sign up with one the internet only banks, which will usually have a telephone banking 'back-up' but certainly won't have any traditional branches.

If you're new to online banking, and the internet in general, I would suggest you explore your existing bank's online facilities first. This may involve going into a branch and completing a form (e.g. Barclays, I think), or visiting their website and registering there (e.g. NatWest). The facilities available to you once you are up and running will vary quite significantly, from just being able to check your balance and view statements, to managing direct debits, standing orders, and transferring money to and opening other accounts.

The other route is to visit the website of an internet only, or mainly internet, bank. Examples include Egg, Cahoot, and Smile. There are also banks such as First Direct that have migrated from mainly telephone to internet banking. These banks will usually operate all their services via the internet, including account opening and closing (although they will usually send you a form you need to sign and request identification), transferring money, and paying bills. Many have also started to offer other services such as credit cards, home/car insurance, and investment banking (units trusts etc).

The advantages

I've touched on some of the features available when banking on the internet above. These can be of particular benefit to those that have difficulty getting to a traditional bank. In some cases they can even save a trip to the post-box because, for example, some internet banks allow credit card payments to be made by credit transfer from your current account (whichever bank it is with).

Of course the key advantage of many of these accounts, which applies to non-sufferers as well, is that they tend to off
er better rates and lower charges.

The disadvantages

There is no such thing as a free lunch, and internet only banks do have a key disadvantage which you have to trade off against these advantages. Because there are no branches, payments into the account can usually only be made by post or by credit transfer. Some offer freepost envelopes for sending in cheques, but it can be rather difficult to pay in cash. Withdrawals are usually handled either by credit transfer to another account or by using cash machines.

However, some of the internet banks are owned by big high street banks and will allow deposits to be made at their branches (but not over-the-counter withdrawals, or enquiries). An example is First Direct, owned by HSBC.

My experience

I have a 'traditional' current account with the Halifax, and am registered with their online banking website which enables me to check my balance and statements, modify and cancel direct debits and standing orders, as well as open a 'WebSaver' savings account, request an overdraft etc? These facilities are all offered free.

My credit card is internet only from Egg. I find the main advantage of this is that I can set up a direct debit from my current account to pay off my bill in full (or any other amount I want) every month. This means there's no risk of forgetting to post a cheque or call in at the bank, everything is automated. I also get no bill landing on the doorstep - everything is done online. This may seem a bit worrying to the more cautious of you - but I've had it 2 years and experienced no problems. The second advantage is that you get 0.5% cashback on all purchases internet and they have just introduced a new card in conjunction with Boots that gives AdvantageCard points instead. The cashback is credited to your bill annually on the anniversary of account opening, which in my case means about £100 just in time for the Christmas sh
opping!

I also have a savings account and a stocks and shares ISA with Egg that are hassle free and offer good rates.

Conclusion

I've painted a very positive image of internet banking in this article, and that largely reflects my experience with it. That's not to say there aren't occasional problem, for example servers going down and not being able to get access for a few hours. However, these are rare, particularly with internet only banks which have better contingency plans in place reflecting the critical importance of the website to their business.

My advice is to start slowly, particularly if you are new to the internet in general, by approaching your existing bank and enquiring about online banking. If you find the experience useful then a savings account or credit card with an internet only provider would probably be the next step, since these tend to offer a significant advantage in their rates compared to the high street.

And lastly a word of caution. The same rules apply on the internet as on the high street as far as common sense goes. You wouldn't put all your life-savings in an Acme Bank International that was operating our of your local takeaway, and the same goes for the internet. Stick to UK banks and those owned by household names (for example, Egg is owned by Prudential), otherwise caveat emptor.


Links:

Halifax - www.halifax.co.uk
Egg - www.egg.com
Natwest - www.natwest.com
First Direct - www.firstdirect.com
Cahoot - www.cahoot.co.uk
Smile - www.smile.co.uk
Barclays - www.barclays.co.uk
HSBC - www.hsbc.co.uk

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