Everything you need to know about online banking

What is online banking?

As the name suggests, online banking is a service that allows you to conduct your financial affairs via the internet, rather than through a branch. You can make deposits, transfer funds between accounts, shop and pay bills. 

What internet banking lacks in face-to-face contact is more than made up for by a host of other benefits. For example, you can check your account balance and report lost cards or suspected fraud at any time of the day or night. Also, you don’t need to take time out to visit or queue at a branch.

How does online banking work?

As with traditional accounts, you specify what type of account you want and request an overdraft if needed. 

Once your application is approved, you can conduct most of your banking business from your own home or when out and about. You do this by logging into your bank’s website or app. 

Once connected, you can set up or cancel regular payments, such as new Direct Debits and standing orders, just like you could in a branch. You can also save payment details of regular payees, such as family members, and transfer money using Faster Payments. This system ensures payees receive the money within a couple of hours of you sending it.

With online banking, you can link your account to other products, such as savings accounts, isas, investments or your mortgage. 

How do you set up online banking?

Opening an online bank account is easy, and should take no longer than 10 minutes or so. All you need to do is visit your preferred bank’s website and click on the apply button for your chosen account type (e.g. sole or joint account). In some cases, you’ll need to download a mobile app to proceed. 

When it comes to the application itself, you need to have certain information to hand, such as:

• Proof of ID, including a form of photo ID, such as a passport or driving licence. You may also need video proof so the bank can set up biometric identification (facial recognition)

• Contact details, such as your phone number and email address. This is because you may be sent a password during the application process

• Personal details. You need to give consent for the bank to run a credit check on you. You will also be asked to provide some personal details, such as your income, so the bank can decide what overdraft limit to set, if any

• Other accounts. You may be asked whether you want to open another product in tandem with your current account, such as a savings account or a mortgage

You often find out straight away if your application is successful. Then it’s just a case of waiting for your bank card and PIN to arrive. This can take up to five working days if you’re a new customer.  

For existing customers, the process can be even quicker because your bank already has most of the required information. 

Is it worth switching to an online bank?

If you prefer to speak to someone in person, or you tend to make cash deposits, then a high street branch may be more attractive than online banking. But for the vast majority, online banking wins hands down. This is due to several major benefits, which fall into two main groups: time benefits and money benefits.

Time benefits

Whether you are time rich or poor you could benefit in the following ways:

• No need to visit a branch

• No need to phone a call centre

• No need to wait for a statement – which could prevent you from  going overdrawn

• Instant 24/7 access to accounts 

• Easy application process for sister products, such as savings accounts and credit cards

• 24/7 online fraud or lost card reporting

• Access via multiple devices, including mobile apps, so you can connect on the go

Money benefits   

By eliminating the need for physical branches and the employees to staff them, banks can make significant cost savings, which can be passed on to customers in the following ways:

• Better rates on high-interest accounts 

• More attractive cashback benefits

• Lower charges and fees, such as on packaged accounts    

• Lower interest charges on overdrafts

• Better deals on current accounts that are linked to savings accounts

• Notice of upcoming payments, so you can more easily manage your money

Downsides to online banking

Despite the wealth of benefits online banking offers, there are some disadvantages: 

• Technology failures can mean customers aren’t able to connect with their bank account for a period of time

• Security breaches are rare, but they make for damning headlines when they arise, and can rock confidence

• Some tasks can’t be done over the internet, such as depositing cash. For this, you’ll need to visit a branch or arrange for a collection (if your bank offers this service)

How to switch to an online bank

Most UK banks have signed up to the Current Account Switch Service (CASS). This universal tool allows a customer to open an account and transfer all their money, Direct Debits and regular sources of income, such as salary or benefits, to their new current account. 

To switch from a traditional or other online account, you simply apply with your new provider. If your application is successful, CASS does the rest, meaning you are up and running on a specified date, which will be after seven working days.

Is online banking safe?

Online banking is secure thanks to a number of safeguards, including state-of-the-art encryption, firewalls and other security and fraud monitoring systems. Banks also incorporate website and app time-outs, just in case the customer fails to log out at the end of a session.

Online banking customers are also expected to play their part in the following ways:

• Keeping all passwords, authentication codes and answers to security questions (such as your first school) secret

• Avoiding public access networks, or, if you do log in from elsewhere – for example, a café or your workplace – ensuring no one is looking over your shoulder and that you log out at the end of the session

• Regularly checking account statements, and reporting anything unusual, such as unfamiliar withdrawals

• Never responding to unsolicited emails or phone calls. Banks won’t ask for account details and passwords online or over the phone. Also, don’t click on website links in emails purporting to be from your bank. Always close the email and contact the bank in the normal way