Accessible. Simple. Convenient. Efficient. Automatic.
As all workout warriors and diet veterans can affirm, these are core requirements of any successful fitness plan. Without these characteristics, most physical fitness journeys fail before they’ve truly started.
Similarly, becoming financially fit and achieving financial freedom requires a game plan possessing all of these same attributes. Crafting such a plan is a tall order, but after reading this article you’ll be well on your way to answering the bell.
Today we’re peeking through the keyhole at how online banking can open the door to your path to financial freedom.
What Is Online Banking?
For the purposes of this article, online banking consists of user accounts created online via the websites of your banking institutions for your savings, checking, and credit accounts.
Note that this article is not addressing online bill pay, which consists of similar online accounts set up with service providers for the purposes of monitoring and paying bills online. That’s a topic for a future article and outside the scope of today’s post.
Online banking requires the creation of a user name and password, frequently coupled with security questions that only you know the answers to. Once you’ve created your login credentials you will be able to check your account balance, create custom statements, configure balance alerts, and transfer funds online without needing to visit your bank in person or await your monthly statement in the mail.
Knowledge Is Power
The importance of having instant access-on-demand to your account balances and transactions cannot be overstated. Ever found yourself wondering whether a check you’d written had been cashed yet? Written a check and simply hoped that it would clear because you weren’t certain what your current checking account balance was?
If you can answer yes to either of those two questions, imagine how much less stressful it would be to be able to quickly and easily verify your checking account balance on your phone or home computer in 30 seconds or less.
The inability to check your current account balance at any given moment can easily result in overspending, overdraft fees, bounced checks, and credit score penalties.
Online banking not only offers a solution to all of the above, but it also confers intangible benefits such as replacing uncertainty regarding your current financial situation with confidence. No more lying awake at night wondering if your account is still in the black!
The Convenience Factor
The convenience of online banking is critical to building and maintaining familiarity with your money. The ability to quickly view current balances and transaction history as well as create custom statements at the drop of a hat is a huge improvement to the once-a-month retroactive snapshot provided by monthly statements.
By way of example, consider a scenario I encountered a year or two ago while serving in the capacity of Treasurer for a local non-profit organization. One of my responsibilities was to provide a monthly report of our financial transactions and current balance. Complicating matters, our board meetings did not align with the statement cycle of our checking account.
In the absence of online banking, the process for preparing the financial report prior to our monthly meetings required me to call or email our bank and attempt to describe the custom statement which I needed to have generated.
Once the required statement was available, my options for obtaining it were to either wait for it to arrive via snail mail, have it faxed, or pick it up in person at the bank. Snail mail was not an option since the statement had to be current to the day. Due to the fact that I did not have access to a fax machine, picking it up in person was often the only viable alternative.
This entire process was error-prone, subject to delays, inefficient, and time-consuming. What I could have done quickly and efficiently in a matter of under 5 minutes with online banking took over an hour and involved time off work and a stressful attempt to race traffic and beat the clock to the bank.
Needless to say, one of my first actions as Treasurer was to enroll in online banking.
Save Money With Online Banking
Now let’s talk some numbers. You didn’t think you’d make it through a whole article without crunching some numbers, did you? Ha!
Online banking isn’t just about convenience – there’s a financial factor at play as well. Look no further than the fact that according to the latest annual report, we Americans collectively paid $15 billion – that’s BILLION, with a B – in overdraft fees.
On an individual basis, the average American pays $72 in overdraft or bounced check fees per year, at an average of $35 per instance. But that number is actually understated for some – according to the above NerdWallet study, nearly 20% of Americans pay an average of $442/year in overdraft fees.
This can be a costly misstep, considering that 57% of Americans have less than $1,000 in savings and 39% have no savings at all.
As we learned in the 5-part compound interest series, the true cost of these fees is much higher than their face value once opportunity cost is factored in. For example, overdraft fees totaling $442/year x an adult life of 50 years = $22,100. That’s bad enough! But if we consider the $205,283 that money could have grown into with the compound interest rocket to riches, the total cost of those fees jumps to a total of $227,383, the equivalent of $4,547.66/year!
Overdraft fees are completely preventable, and online banking can eliminate them almost entirely if used properly. We haven’t even tallied other sources of savings, such as the time and money conserved by eliminating physical trips to the bank or eliminating fees associated with balance inquiries and custom statements.
Avoid Overdrafts & Fraud With Automated Alerts
Many online banking platforms enable configurable email or text alerts when your account balance drops below a specific number or when a large transaction posts to your account.
The Consumer Finance Protection Bureau (CFPB), a government agency formed to ensure that banks treat customers fairly, recommends signing up for account balance alerts as an effective means of avoiding overdraft charges.
These alerts can also serve as an early-warning system if your bank account has been compromised, allowing you to take remedial action much earlier than you could if you were unaware of the issue until your next monthly statement.
Is Online Banking Secure?
If you’re not already using online banking, you may be hesitant to do so due to security concerns. It is perhaps worth noting that even if you’re not enrolled in online banking, your name, account numbers, and PINs are technically already at risk of a bank-level security breach.
Meanwhile, many security experts believe online banking can actually be beneficial to identifying and limiting the damage of identity theft. For example, Robert Siciliano, identity theft protection expert and CEO of IDTheftSecurity.com recommends utilizing transaction alerts configurable as part of your online banking profile as a means of monitoring and combating fraud.
Although online banking accounts are typically protected by industry-standard security protocols, there are a few precautions you can take to help ensure that your online banking accounts remain secure:
- Utilize multi-factor authentication if offered by your bank. This involves not only providing your user name and password to log in, but verifying your identity for each login by entering a special code sent to your registered email address or phone via text.
- Access your online banking accounts only over secure, encrypted connections like that used by this website. The URL’s of secure websites begin with https rather than http, with the “s” standing for “secure”. A closed padlock icon in your browser’s address bar also indicates a secure site.
- Avoid accessing online banking via the use of public, unsecured wifi connections, like those at McDonald’s, coffee shops, or hotels.
Online Banking Is Key To Your Financial Freedom
Online banking offers one additional and vitally important benefit above and beyond all of the tangible and intangible benefits outlined above – it unlocks your ability to harness the power of money management tools which can put you in the driver’s seat of your finances.
This article is the first in an unofficial series in which I am outlining the money management system used by my wife and I as the foundation for our journey to financial freedom. If you’re a new reader and are not familiar with our story, you can find it here.
Online banking is a core aspect of this system and one I highly encourage you to take advantage of for the reasons listed above, as well as many more that I have not yet covered.
If your finances have been running the show, it’s time to turn the tables. If you’d like to master your money in support of financial freedom, locate the websites of your bank and credit accounts and enroll in online banking today. In the next article, you’ll see exactly how you’ll use this functionality to put you in control of your money like you’ve never been before.
Master Your Money Series Action Items
In the name of equipping you to master your money bronco, below I’ve listed takeaways from this article in the form of the specific actions you can perform to start gaining control of your finances:
- Educate yourself on internet security protocols by watching this short YouTube video.
- Create a list of all of the banks or institutions where you have savings, checking, or loan accounts. Include your mortgage, credit cards, and student or auto loans.
- Locate and visit the website for each bank or institution on your list – the web address is often listed on your last statement. First verify that each site is protected with SSL encryption, then enroll in online banking. Sign up for multi-factor authentication, if offered. Make a note of your login credentials and store them in a secure place unless or until you feel that you can easily remember them.
- Create email and/or text low balance, large transaction, and (for credit card accounts) nearing credit limit alerts if your banks provide automated notification services.
- Familiarize yourself with how to quickly check your current account balance by exploring the online banking interface for each account. Bookmark or favorite each online banking login page in the browsers of your home computer(s) and cell phone(s) for sake of easy future access, even while on the go.