Online Banking–A Complete Guide to Internet Banks

While it may be hard to imagine banking without Internet access, just ten to 15 years ago there was no online banking like we have today. In fact, in the 1980s and early 1990s, a bank customer could not even use his or her ATM card at every teller machine. Instead, they had to find an ATM that was on the same network as their bank (remember looking for a Cirrus or Plus ATM). With the advent of and wide spread use of the Internet, however, online banking today has become the norm.

There are two types of online banks. First, traditional brink and mortar banks have universally adopted the internet banking model, and offer their customers account access via the Internet. This type of online bank is sometimes referred to as "brick to click." Second, federally charted, FDIC insured virtual banks have become more mainstream. Unlike brink and mortar banks, virtual banks do not have physical branches. Instead, all transactions are handled electronically.

This guide will look at both traditional and virtual online banks. We'll discuss the advantages and disadvantages of banking online, how to evaluate online banks, security and identity theft issues, and the future of Internet banking.

What is Online Banking

Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their financial institution. Typical financial transactions include checking account balances, transferring between accounts, paying bills online, and applying for new accounts. Generally, the features and functionality are similar from one online bank to another. As an example, here is a list of online banking features at PNC, a large national financial institution with nearly 3 million customers:

• Account Summary - Stay on top of your finances with a summary of your PNC personal, business and investment accounts.
• Account Activity - Enjoy around-the-clock access to your accounts; check balances, review recent transactions, view images of your checks and more.
• Online Bill Pay - Save time and money; pay your bills in just minutes from one simple screen. You decide who, when and how much to pay.
• Online Statements - Eliminate the paper; receive your statements online and view, print or download up to 18 months of statements.3
• Transfer Funds - Move your money to where you need it; transfer funds between your eligible PNC accounts or between your PNC accounts and eligible accounts you own at other financial institutions.4
• AutoAlertsSM - Stay informed; receive e-mail notifications alerting you about key account activity such as low balances, the arrival of direct deposits or overdrafts on your account.5
• Data Export - With just a few clicks, download account activity in Excel, Microsoft® Money, or Quicken® file formats.
• PNC Secure Messaging - Help is only an e-mail away. Send account related inquiries with confidence using the Message Center.

In addition to the above features, many banks offer downloads for popular money management software such as Quicken® or Microsoft Money. These downloads allow customers to quickly and easily download their banking activity to software that tracks income and expenses.

Is Online Banking Secure?

This is perhaps the most important question of all. The fact is that internet banking is a reality, and billions of dollars of transaction are processed online everyday. But it still leaves open the question, just how safe is our money as transactions fly across the Internet. Banks today use what is called 128-bit encryption (check to make sure your bank uses this technology). The experts in the field say that it is virtually impossible to steal data being sent via 128-bit encryption. The reality for must of us, however, is that our own actions present the most risk.

For example, do you access your online bank from public computers? If you do, you run the risk that software has been installed on the computer that copies your confidential information such as passwords as you enter the data into the computer. Do you click on links in unsolicited email that claims there is a problem with your bank account? Known as phishing scams, such email are intended to trick people into giving up confidential information. What makes these scams so effective is that the email and and website linked to from the email look just like the real thing. They are not. Remember, a bank will never ask for you to submit confidential information via an email. If you have any doubts, call the bank at the number listed on your bank statements, credit card or debit card.

For additional information on the security of online banking, check out the FDIC's Save Internet Banking page.

How to Pick the Best Online Bank

Studies have attempted to rank online banks based on a number of criteria. While such studies can prove helpful, the best online bank often depends on exactly what an individual banking customer is looking for. Nevertheless, here are some criteria to consider:

1. FDIC Insured: First and foremost, you want to make sure the financial institution is FDIC insured. One of the big benefits of checking accounts, savings accounts, and CDs is the fact that the accounts are insured by the FDIC.
2. Rates: Particularly if you are looking for an online savings account, a certificate of deposit, or some other savings vehicle, interest rates offered by each financial institution will be one of the most important criteria. We track the best CD rates and highest yielding online savings accounts, to make it easy to determine which online bank is best for you.
3. Products: Not all online banking offers the same products. For example, certificates of deposit are typically offered in terms ranging from 6 months to 60 months, but some banks have CD products for just 1 month or as much as 120 months. Likewise, some internet banks do not offer CDs at all. The brick to click banks tend to have a full service line of banking products, while the purely Internet banks tend to have a more focused product range.