Net the best account

How would you feel about having a bank account that is solely confined to the realms of cyberspace? Kate O’Raghallaigh looks at the pros and cons.

Are you sick of sacrificing your lunch hour to queuing to pay in a cheque at your bank? Do you long for the days when having to embarrassingly shout the demise of your financial situation to an unsympathetic teller through a glass partition will be over? If so, then it might be worth considering an online bank account. Whether it’s for your savings or your day-to-day expenditure, an online account could offer you benefits that make managing your money a whole lot easier.

Rob Skinner, spokesperson for online bank First Direct, says that, for many people, direct access to their money is the main incentive for opening an online account. He explains: “While many people are already used to the idea of managing their finances over the internet, more and more people are becoming attracted to the benefits of online accounts, which in part comes from the higher rates of interest that many online accounts currently offer.”

Bring on the benefits

With an online account, you won’t be restricted by branch opening hours, as you are able to manage your finances 24 hours a day, 365 days a year, from your computer. Access to your cash doesn’t have to be compromised either – with an online savings account, for example, if you don’t have a cash card (which most online savings accounts don’t), you can normally access your money via a linked bank account. This means you can simply transfer money online to another account in order to access the funds through a bank machine. And, if your linked account is with the same provider, the money will clear more quickly if not instantly. With an online current account, it is still standard practice to be issued with a cash card or debit card, so in effect, there’s little difference between this and a standard current account in terms of accessing your money through a bank machine.

What about the costs?

Some online savings accounts will come with withdrawal penalties, which may mean that for the month in which you make a withdrawal, you don’t earn as much interest, if any. Plenty are available without withdrawal penalties, however, and with competitive rates of interest. Northern Rock’s online tracker account, for example, offers 6.49% APR, with a no notice withdrawal period and a minimum investment of £1, while Principality’s e-saver offers 6.30% APR with no notice withdrawals allowed. The most competitive online savings accounts are currently offering rates of above 6% APR, whereas the most competitive non-internet only accounts are more likely to offer somewhere in the region of 5.5% to 6% APR. To compare current and savings accounts, try our comparison tables.

Security matters

Staying safe online is a concern for many internet users, and is understandably relevant where bank accounts are concerned. Sandra Quinn, spokesperson for UK payments association APACS, says although identity fraud is a problem for internet users and consumers in general, those with online bank accounts need not be more worried than anyone else. When asked whether online banking customers were easier targets than credit card users, for example, she said “absolutely not”.

“In the first half of 2007, identity fraud was actually down on the previous year, which is due in part, I believe, to rising consumer awareness. More people know about fraud now, having read so many stories about it in the press and so forth,” Quinn continues. Online banking customers are no more intrinsically at risk of being a victim of fraud than any other kind of banking customer or general consumer. Online banking simply imposes another set of measures on people’s accounts, however, just because it is online, it doesn’t mean you are at risk.”

Quinn advises anyone who uses internet banking or who has an online account, to take precautions to protect themselves from identity fraud. She says: “Just as you would lock a door to make it more secure, people should do the same with their computers.” She also recommends making sure you have up-to-date anti-virus software, and also warns people to ignore any emails that purport to be from their bank in which they ask you to enter your account details. “A bank will never send out an email like this, precisely for the reason that contacting customers about account details through email is not as safe as doing so over the phone or through the post,” Quinn explains.

When all is said and done, however, many people may still want the assurance of a real life bank branch with real life people working in it. If you’re happy with your current or savings account the way it is, then by all means don’t shack up in cyberspace just because everyone else is. But if you’re attracted to the idea of managing your money online and want a competitive rate of interest, then an online account may well be right up your street.