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Online bank accounts - managing your current account and / or savings through online bank accounts may help you keep on top of your money. Opening a current account online? Learn how online bank accounts operate, and what you can do to make your online bank accounts safe and secure.

What are online bank accounts?

Are you thinking of opening a current account online? Banking online gives you the ability to use your personal computer to communicate with your bank account. In the early days of online bank accounts you would have been charged extra for the privilege of accessing your bank account online. Such charges are no longer made and virtually all banking service providers offer some form of online access for their customers. By 2020, the Banking Revolution report by Alliance & Leicester has predicted that there will be 42 million people using online bank accounts in the UK, making the bank in our home the norm for 8 in 10 of us. (Source: Alliance & Leicester website 12/11/2004)

As you might expect, the first bank to offer online bank accounts was a US institution, Wells Fargo. The San Francisco-based bank first offered an online service in 1990 on the Prodigy proprietary network. (Source: Customers.com by Patricia Seybold, Random House 1998) Customers could check balances on their PC screens and transfer funds between accounts. In 1994 the bank launched a website and in May 1995, Wells Fargo claims it was the first to offer banking on the web when it offered the ability to view balances and the past 45 days of transactions.

In the UK in the early 1990s a number of banks experimented with their own proprietary intranet services. The first major financial institution to offer a web-based online bank accounts service in the UK was Nationwide Building Society's Online Banking website, launched in May 1997. (Source: Money Marketing 05/06/1997 & Marketing 17/07/1997) The first bank to offer online bank accounts over the internet was Royal Bank of Scotland hard on the Nationwide's heels in June 1997.

PC banking via a bank's own intranet differs from web-based banking, requiring customers to use extra software, either custom provided by the bank itself or proprietary programs such as Microsoft Money or Quicken .

Online bank accounts via the internet do not require you to have extra software although some people do use personal finance management programs to manage their money and some online banking services may allow you to download your account data into the program or spreadsheet of your choice.

Check out Moneyextra's Banking section now.

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What are the benefits of online bank accounts?

The most obvious benefits of opening a current account online are the convenience and flexibility it affords. With online bank accounts you face no queues, no waiting at cash machines to check your balance and no worries about whether standing orders or bills are processed on time; the potential benefits of online bank accounts are clear. You may view your account when it suits you to do so not when the bank is open!

You have direct control over when payments are to be made from your account and you may transfer funds to and from savings accounts into your current account. Using online bank accounts, you may check your balance, view transaction records and communicate with the bank via e-mail.

Research by The Henley Centre in 2004, conducted for Royal Mail, showed that 24% of UK consumers claimed to use online bank accounts as a vital element of their personal financial management. (Source: Marketing Week 17/06/2004) However, it also showed that we still like bank statements - providing an entirely paperless service would prompt 29% of respondents to switch to an alternative provider offering traditional banking methods and services.

Online banking has not been an unqualified success story. Early problems with technology, making services slow and prone to crashing, have been solved but confidence in the proposition has been undermined by fear of fraud. Nevertheless, providing you take certain precautions, such as protecting your password, only using secure websites, etc., you can be more confident that your online bank accounts will be secure.

The bursting of the hi-tech bubble and the end of the initial online boom saw a couple of banking services withdraw from the internet. Dublin-based First-e, owned by French group Banque d'Escompte attracted more than 200,000 customers in less than two years, including around 50,000 in the UK, but was unable to create a viable business and in September 2001 shut its operations in the UK and Germany.

First-e was not the only banking service to retreat from the online market-place. Zurich Financial Services launched its online banking proposition in January 2002 with a heavy advertising spend (the campaign showed formations of flying pigs in hindsight perhaps an unfortunate choice). (Source: Moneyextra website - 2002) However, just nine months later, in September 2002, Zurich Bank was closed down with customers receiving a compensatory one-off payment of £200, or 5% of their cleared balance, whichever was the higher figure.

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What services do online bank accounts offer?

Typically, online bank accounts will allow you to check your balance; review your transactions; print a mini-statement; order a full postal statement; pay regular bills; immediately transfer money internally to and from other accounts in your name with the same institution such as savings accounts; make ad hoc payments; set up and amend standing orders.

All the online bank accounts services available to UK customers work with PCs running the Microsoft Windows operating system. However, fewer of them function satisfactorily with Apple Macintosh computers. You should check with your bank for any compatibility issues. You will need to be using an up-to-date version of your web browser. Most banks will support Internet Explorer and Netscape Communicator / Navigator to access their services but, again, you may find there are compatibility issues with other software.

Most online bank accounts will time out and disconnect automatically after a few minutes just in case you forget to log out although it is recommended, for reasons of security that you should always log out properly and close down the browser window that you have been using (especially if you have been accessing your online bank accounts from a PC in your workplace that may be used by other people).

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What supporting services do banks offer?

Most banks provide a seamless integrated service for people opening a current account online with online bank accounts supported by telephone and branch facilities. Internet-only banking operations such as Cahoot, Egg and Smile have supporting telephone services. Do be aware, however, that while you may be able to access your account online 24 hours a day, your bank's helpline and general telephone service may be restricted to more mundane hours.

Banking through the TV via digital channels from cable and satellite TV companies is offered by some institutions and many banks offered transactional services on WAP-enabled phones as well as online bank accounts. However, neither service took the country by storm. It is possible that increasing usage of Third Generation and General Packet Radio Service mobile phone technologies will increase the take-up of banking by phone.

In the meantime banks have turned to texting as an add-on service to their online bank accounts. For example, HSBC subsidiary first direct, which despatched its 100-millionth text to customers in February 2005 offers customers low balance alerts, current balance and recent transaction texts, mini statements, alerts when a large payment is made and messages about their credit cards, savings and mortgages. (Source: Headline Money December 2004) Lloyds TSB also offers its text service to business customers and was the first bank to do so (Source: Lloyds TSB 20/12/2004).

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Can I pay bills online without online bank accounts?

You may make certain bill payments online without having online bank accounts. Alliance & Leicester's BillPay service carried out its one-millionth transaction in November 2004. (Source: Alliance & Leicester 16/11/2004) The service was previously offered under Alliance & Leicester's Girobank brand. However, in July 2003, Girobank was merged with other parts of the group to form Alliance & Leicester Commercial Bank.

The website, www.billpayment.co.uk was launched in 2000. You do not need to have online bank accounts to make payments via the BillPay website, merely access to the internet and a debit payment card, such as Visa, Visa Electron, Switch, Solo or Maestro.

Almost 200 organisations now accept payments via BillPay, including most local authorities, utility companies, housing associations and HM Revenue & Customs. The BillPay and BillPay PLUS online services are accessible 24 hours a day, 365 days a year.

The service is free to bill payers. Registering takes only a few moments and is carried out entirely online. As with all transactional websites, Billpay uses secure, 128-bit encryption technology and, unlike some sites, card details are not retained on the BillPay servers.

BillPay PLUS uses the same technology as BillPay, but is branded in the bill issuer's style and the service seamlessly integrates with their website. It also provides additional functionality such as real-time viewing of payments being made and the ability to cancel or refund payments.

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How secure are online bank accounts?

"Is it safe?" is one of the first things we ask of anything new. Regular news reports of hackers, phishers, spoofs, trojans and fraudsters can make us uneasy about opening a current account online.

However, highly sophisticated encryption procedures have been put in place by the banks to protect online bank accounts although individual organisations will not give specific details about their online bank accounts' security measures for fear of compromising their effectiveness. To these are added further layers of security including an encryption process which interacts with your browser and 'digital watermarks'. All of which should mean someone trying to hack into your online bank accounts should find themselves encountering a wodge of gobbledygook.

Security concerns about online bank accounts are addressed by the financial institutions in their adoption of the most modern encryption technology. The commonly used 128-bit encryption is the highest form of online security generally available. It works through another piece of technobabble, Secure Socket Layer (SSL)-based applications, specially designed for online transactions.

The SSL protocol was developed by Netscape to allow the transmission of private documents via the internet. All modern browser software supports SSL and the protocol is used by most online retailers to obtain confidential user information, such as credit card numbers as well as by online bank accounts. You will be able to tell when an SSL connection has been made by your computer as, by convention, web pages that require an SSL connection start with https:// instead of http://.

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What should I do to protect myself against fraud?

So far, victims of online fraud have been reimbursed by their banks. However, this state of affairs may not continue especially if the fraud that takes place is the result of negligence on your part. The real weak link in the security chain is the human part: us! You wouldn't walk into a pub and just leave your wallet lying on a table while you have a drink. So don't do the cyber equivalent with your online bank accounts. Just as in the case of telephone banking or using a hole in the wall cash machine, security on the net means no one but you should know what your password / passphrase or PIN number is.

Indeed under the Computer Misuse Act (1990), it is possible that even unwittingly passing on passwords and user names to a third party could be interpreted as breaking the contract you have with your bank when you promise not to pass on information of this kind to anyone else. (Source: Her Majesty's Stationery Office - 1990) In theory, this would mean that if your online bank accounts became the victim of online fraud, your bank wouldn't have to give you your money back. In fact, you would be liable.

There are things your bank has a right to expect you to do so here is a list of customer responsibilities:

  • Keep your online bank accounts' password to yourself
  • Keep your online bank accounts' PIN number to yourself
  • Do not leave your online bank accounts' numbers lying around
  • Your PC / internet screen will indicate whether you are operating in a secure environment - don't ignore such messages
  • If you have any problems or concerns about the security of your online bank accounts, contact your bank
  • Treat EVERY unsolicited email with caution and never click on links from or reply to such emails
  • Install anti-virus software, keep it up-to-date and run regular security scans
  • Install and learn how to use a personal firewall
  • Install the latest security updates, also known as patches

Always access your online bank accounts by typing the bank's address into your web browser. Never go to a website from a link in an email and enter personal details. If in doubt, contact the bank separately on an advertised telephone number.

Be wary of unsolicited e-mails or calls purporting to be from your bank asking you to disclose any personal details or card numbers. Keep this information secret. Be wary also of disclosing any personal information to someone you don't know. Your bank and the police would never contact you to ask you to disclose PINs or all your password information.

Check your bank statement; if you notice anything irregular on your online bank accounts contact your bank immediately.

In October 2004, APACS, the UK payments association working on behalf of the banking industry, with the support of the National High-Tech Crime Unit, launched a one-stop consumer advice site, www.banksafeonline.org.uk , designed to help online bank accounts' users protect themselves from online scams and threats.

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What are Phishing and Pharming?

Phishing attacks use both social engineering and technical subterfuge to steal personal identity data and online bank accounts credentials. Social engineering schemes use spoof e-mails to lead consumers to counterfeit websites designed to trick recipients into divulging financial data such as credit card numbers, online bank accounts usernames, passwords and social security numbers.

Technical subterfuge schemes plant crimeware (also called malware) onto PCs to steal credentials directly, often using Trojan keylogger spyware. Pharming crimeware misdirects users to fraudulent sites or proxy servers.

According to a report by the pan-global Anti-Phishing Working Group in February 2005, the most common form of phishing is malicious code that either modifies your files to point commonly accessed sites to a fraudulent site (pharming) or malicious code that logs your keystrokes (keylogging or Trojan e-mails) (Source: Anti-Phishing Working Group February 2005)

Trojan e-mails may contain details of a fictitious order, displaying a cost that will be charged to your credit card. The e-mail will also contain a link to a web address to view the order in detail. If you visit the site on an unprotected computer, your PC will be infected with the Trojan software that, next time you use the computer to access your online bank, can potentially record your secret passwords and PINs used to log-on.

Banks are aware of the threat from Trojans and are already introducing security measures to defend against them, including partial passwords and drop-down lists, which rely on the use of a mouse to select alphabetic or numerical characters.

In addition, banks are now trialling security keys that generate different PINs you must type in each time you access your account. Lloyds TSB rolled out its Access Code Device in October 2005 (source: Moneyextra 14/1/0/05) while Barclays unveiled PINsentry in April 2007 (source: Moneyextra18/04/07).

What you should do to defend your online bank accounts against malice and fraud is to make sure your PC firewall is operating and that you are running up-to-date anti-virus software.

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How can I tell if an e-mail really is from my bank?

Once you have signed up for online bank accounts, your bank will, from time to time, send you e-mails. Apart from anything else, the bank will be hoping to sell you more of its financial products and services. However, there is one kind of e-mail that you can be 100% absolutely certain that is a spoof from a fraudster who is phishing for your account information: it is the e-mail requesting your password!

These spoof e-mails follow a broadly standard format:

Dear Customer,

Recently there have been a large number of identity theft attempts targeting our customers. In order to safeguard your account, we require that you confirm your online bank accounts' details (credit card information and login / password for online banking, if you have them).

This process is mandatory, and if not completed as soon as possible, your account or credit card may be subject to temporary suspension.

To confirm your details please follow the link:

http://yeswereallythinkyoullfallforit.com

Thank you for your prompt attention to this matter.

Alternatively, you may see something like this:

Dear Customer,

During our regularly scheduled account maintenance and verification procedures, we have detected an error in your billing information.

This might be due to either of the following reasons:

  • A recent change in your personal information (i.e.change of address)
  • Submitting invalid information during the initial sign up process
  • An inability to accurately verify your selected option of payment due to an internal error within our processors

Please update and verify your online bank accounts information by clicking the link below:

http://yeswereallythinkyoullfallforit.com

If your account information is not updated within 48 hours then your account will be frozen.

Let us be clear: no financial institution will ever send you an e-mail asking for your online bank accounts' data. Any such e-mail you receive may contain a link to a web site which appears to be your bank's website but is actually a near replica or spoof that may ask for credit card or internet security and email contact details.

To reiterate, no bank will send out e-mails to existing customers that ask for security details or other confidential information from you. If you receive an e-mail that looks as if it has been sent from your bank requesting your internet security or other confidential details of your online bank accounts, do not respond to it or visit any site to which the e-mail may contain a link.

You should, instead, forward a copy of the e-mail to your bank, alerting them to the spoof and then delete it from your system. If you suspect you may have inadvertently divulged any of your personal details or if you have any suspicions about your online bank accounts regarding what may appear to be a spoof e-mail or phishing website, you should get in touch with your bank immediately by telephone.

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Which online bank accounts are right for me?

You may find that there may well be little to choose between online bank accounts in terms of functionality. Most institutions will offer every service that you are likely to want to use online as part of their account offering.

However, you may prefer to opt for a provider that offers greater levels of security with mouse-operated on-screen passwords but it is worth remembering that security is as much an issue that you must address by keeping your PC and its software up-to-date.

General availability and reliability of online bank accounts are not the issues that they were in the early days of online banking. Your decision on which online bank accounts service to choose is likely to come down to the issues that should decide all our financial decisions. Does the account (or suite of accounts and services) offer value for money? Will the online bank accounts in question allow you to manage your financial lifestyle as you need to? Are the online bank accounts charges (if you think you may face them) competitive?

The other point to bear in mind is that once you opt for online bank accounts, you should remember that it is not a once-in-a-lifetime decision. Check the market each year to see if you can get a better deal. According to the Banking Revolution report fewer than 2% of banking customers switch current accounts a year but by 2020 as many as 40% will be prepared to do so.

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15 August 2007 © Moneyextra.com

 

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.