Finding Success with Online Bill Paying

By Elizabeth Wasserman

No one likes to pay bills, really. Not only is there a reluctance to part with hard-earned cash, but the sheer mechanics can be a headache. Organizing bills, keeping track of due dates, writing out the checks, balancing the checkbook, addressing the envelopes, and -- oh, yes -- remembering to drop by the post office to buy stamps.

However, you can bypass all these steps by simply paying your bills online. With a few mouse clicks, you can pay your utility company, mortgage bank, credit-card company, and so on. And this trend has more than caught on: Nearly 40 million American households are expected to use online banking services this year, according to the Online Banking Report. And when you pay your bills online through your bank's web site, your payments only take a day or two to "post" --compared to the up to five days it can take if you mail a paper check to cover your bills.

So, if online banking is so great, why are some of us still reluctant to try it? The reports about identity theft are enough to give qualms even to the technological elite. Dory Devlin, a mom and blogger at Yahoo Tech, put off banking online for a long time because she wasn't certain it was safe and thought it would be a hassle to get started.

"When I finally did jump in, it took only a few minutes to set up an online ID and password and start paying bills online," she says. "Now that I do, I wouldn't go back. It takes only minutes to pay our bills, transfer funds, and research checks paid and other account information."

Getting started
The first step is to set up an online bank account. Try your own bank first. These days, more than 6,000 financial institutions offer online banking services compared to only six in 1996, according to Margot Mohsberg, spokesperson for the American Bankers Association. "Most banks offer online banking free of charge," Mohsberg says. If yours doesn't, and you need to find a new bank that does, make sure the new bank is legitimate and that your deposits are insured. To verify a bank's insurance status, look for the familiar FDIC (Federal Deposit Insurance Corporation) logo on the bank's web site. There are also alternatives to traditional banks in the form of online bill-paying services. Paytrust allows users to pay a small monthly fee or transaction fee and arrange payment online for any bill. Bill-paying services are also available from AOL and Yahoo for a small fee to non-subscribers or free to their subscribers.

How payments work
Once you set up an account, most banks allow you to set up recurring payments, such as your monthly car payment, so that bills are paid automatically. A lot of banks have a long pre-approved list of companies that accept online payments from them. But even if the company you need to pay isn't on the list, you may still be able to pay electronically by manually adding the payee, account number, and address. Just check to see how long the payment will take to be mailed -- in these cases, your bank is sending a paper check on your behalf. Bank of America boasts the following: "You can pay almost any business or individual that you currently pay by check -- your phone bill, loan payment, insurance, and credit cards -- even your dentist or daycare center." The only exception the bank notes is that you can't pay court-ordered payments or state and federal taxes electronically right now via its site (although state and federal government sites often allow you to make secure electronic payments on their end).

Security precautions
To sleep more soundly at night, when setting online account access with your bank, select a username and password that are a combination of letters and numbers. Don't use something obvious like your name, social security number or birth date. "My bank is a big, reputable institution, and I am confident in the security precautions it takes," Devlin says. "Still, I change our ID and passwords periodically." Never give your password or PIN to anyone, Mohsberg advises. And check your account statements regularly for unauthorized activity. Watch out for fraudulent web sites that use a name or web address close to the name of your financial institution, Mohsberg says. These so-called spoof sites might try to steal your account information and your money. Sometimes you can reach these dummy sites "by putting in one wrong character in the URL," Devlin says. Also, never respond to email requests for personal information from banks. A reputable bank will never ask for your password via email. But a scam artist will.