Technology has improved the ease at which we do things, it makes things easier and faster. One of such areas you can benefit from the advantage of technology is in online bill pay.

With the application of online bill payment, you can pay your bills or purchase items from anywhere in the world. But how is this possible and how can you take full advantage of online bill payment platform? Find out here.

• What is Online Bill Pay?
• How Does Online Bill Pay Save you Time and Money?
• Is it Better to pay Bills Online or by Check?
• Is it Safe to Pay Bills Online?
• How to Safely Pay Bills Online
• How Much does Online Bill pay cost?
• Can you do Bill Pay from a Savings Account?
• Why is Online Bill Pay bad for Savings Account?
• What is the Best way to Pay Bills Online?

What is Online Bill Pay?

Online bill pay is a service offered by banks, credit unions, and bill-pay services that allows you to pay your bills without writing checks. Most online bill pay is linked to a checking account and offers three payment types:

• Immediate one-time payments
• Future one-time payments
• Recurring payments

Many large service providers now offer “eBills” and are able to receive payment from your bank electronically. However, for smaller providers that only accept paper checks, most financial institutions can send them on your behalf.

In these ways, online bill pay could help you finally cut the checkbook out of your life for good.

Read Also: How to Switch Banks Smoothly Without Missing a Single Payment

With many banks and credit unions, online bill pay is included for free as a part of their online banking services. However, some financial institutions may charge an additional monthly fee for the service.

How Does Online Bill Pay Save you Time and Money?

One of the biggest advantages of online bill pay is that it can help you to automate your payments. Bills that are the same amount each month, like your mortgage or car payment, are great candidates for setting up a recurring payment schedule with online bill pay.

Even for bill amounts that vary from month to month, scheduling payments in advance can help you avoid late or missed payments. With eBills, most financial institutions make it easy to set reminders for when your bills are due.

Your bank or credit union should tell you how many business days it will take for your payments to arrive to your payee. And some will even reimburse your late fees if your properly scheduled payments aren’t delivered on time.

Also, online bill pay can help you consolidate your payments in one place. Instead of having to visit a separate website for your internet service provider, phone provider, and mortgage company to make payments each month, you can just log on to your online banking portal and pay them all.

Below are some other benefits of online bill pay.

Pay Bills

Paying bills online is a huge timesaver, especially if you have several to pay.  You can use your bank bill payment service to send payment to any company or individual to whom you can mail a check. The initial setup requires time to enter your account information for each payee.

Once set up, however, you can pay bills quickly.  No longer do you need to handwrite checks, put them in envelopes, unearth a stamp, and locate a mailbox. You can send onetime payments or set up recurring bills to be paid automatically.

Depending on the recipient, banks will send bill payments either electronically or via paper check. Some banks withdraw the money immediately from your account. Others wait for the payment to clear.

Currently, most banks do not charge for their bill payment service. I have discovered one small bank, however, that adds a monthly fee to customer accounts to cover online services. Check with your bank to see what fees, if any, it charges.

Pay People

Some banks now offer a service where you can send payment directly to another person using the recipient’s email address or phone number. Banks offer this convenience through a third party service such as Popmoney.

There may be a fee for this service. You can weigh the fee against the cost of a stamp, the check and envelope, and your time.

Download Transactions to Software

Downloading your transactions allows you to easily keep track of your deposits, withdrawals, and credit card purchases. You do not need to keep a register by hand.

With personal finance programs such as Mint, Quicken, You Need A Budget, Mvelopes, and others, information on all your transactions can be compiled in one place and are accessible on your computer or phone.

This makes it easy to run reports, analyze your spending and savings, create budgets, and prepare information for your tax returns.

When you download your bank transactions to personal finance software, you will see your online balance. If you or your bank has sent paper checks, the online balance may not be your available balance – the actual amount of money you have on hand to spend.

The only way to truly know your available balance is to record paper checks written, as you write them, in your software.

Transfer money between accounts

Online banking makes it easy to move money between your accounts. More and more banks have the capability of transferring money between your accounts at different banks.

No longer do you need to write yourself a check and go to the bank and deposit it. Some larger banks also allow you to transfer money from your bank account to that another person at the same or a different bank.

Transferring between your accounts at the same bank generally only takes 24 hours or less. Transferring between different banks, however, can take a few days.

Make Mobile Deposits

Your bank’s mobile app may make it possible to deposit checks to your account by taking a photo of the front and back of the checks and electronically depositing them into your account.

Your bank may charge a fee for this service. It could be several days before the funds are made available, especially when depositing personal checks.  You need to keep the paper checks for three weeks after the date of deposit in case there is a problem.

However, keeping your information safe from theft is more important than time savings. If you feel uncomfortable with any of these services, don’t use them. You can also inquire about your bank’s security measures to protect your information

Is it Better to pay Bills Online or by Check?

It’s easier to communicate, be entertained, get informed and handle your finances online. More importantly, it’s also safer to use electronic bill payments than old-fashioned checks, which basically broadcast sensitive financial information to the world.

“What you’re doing is handing someone a piece of paper with your name, address and bank account information,” Steve Kenneally, senior vice president of payments and cybersecurity policy for the American Bankers Association, told Cleveland.com.

That’s all an unscrupulous someone needs to raid your bank account.

It’s hard to think of a good reason to keep using paper checks to pay your bills. Perhaps for emergencies, like when you’re out of cash and your neighbor wants payback on the $20 he loaned you.

But just about every business now utilizes electronic banking. The growth of online shopping has been a major catalyst.

Nobody had heard of Amazon Prime 15 years ago. Now online shopping sales topped $4 billion on Thanksgiving Day alone in 2019.

This revolution in consumer behavior wouldn’t happen if the payment system wasn’t safe. But old habits die hard.

Consumers wrote about 40 billion checks in 2000, according to the Federal Reserve’s Cash Products Office. That number plummeted about 2 billion a year, but it has slowed since 2016.

If you’re debating whether to join the revolution, here are a few basics to consider.

Are Personal Checks Safe?

They are relatively safe considering the amount that are written, but they don’t offer the safety of electronic checks. The big danger is they include the following information about you anyone with one good eye can read:

• Name
• Address
• Phone number
• Bank name
• Bank account number
• Bank routing number
• Signature

You would never put that information on your Facebook page or Twitter account for any Tom, Dick or Vladimir to see. But people have no problem putting on a pieces of paper total strangers will handle.

Armed with such information, a crook could make an electronic transfer out of your account. Your checking account and bank routing numbers are especially valuable tidbits.

Electronic checks are also covered under the Federal Reserve’s regulations on consumer rights and protection from errors and fraud, which limits your liability and makes it easier to recover stolen funds. There is no comparable federal law governing paper checks.

If you use common sense and a few simple precautions, you can reduce the chances you’ll become a victim of check fraud.

The basic steps are:

• Keep a record of all checks you write.
• Monitor bank transactions.
• Keep your checkbooks in a safe place.
• Mail letters containing checks at the post office, where only federal workers handle them.
• Use a fraud-resistant pen containing ink that resists erasing. You can get three for $8.50 on Amazon.

Is it Safe to Pay Bills Online?

Nothing is 100% safe with financial transfers. Online pirates will always try to breach security systems and engage in identity theft. But the risks with paying bills online are acceptable, especially compared to using paper check

Financial institutions use encrypted user data, multi-step verification and require passwords to even begin the process.

If there is a fraudulent transaction, banks must investigate and refund your money within 10 days. The investigation can be extended to 45 days if you receive a provisional refund within 10 days.

How to Safely Pay Bills Online

It’s in the bank’s interest to do everything possible to keep your money safe, but there are things you can do to help.

Keep these steps in mind, and you’ll have more peace of mind:

• Email is notoriously insecure, so never pay bills through a link in an email. Go the company’s website or your bank’s website if you’ve set up a bill-pay system there.
• Don’t send personal information through email.
• Don’t save your password or username on a company site if it’s offered. It may be inconvenient to type those in, but that will be one less place where sensitive is stored and at risk.
• Use banking service that have multi-step verification log-ins. While it may be exasperating having to answer a pre-set question and re-type your username and password every time you log on, having your checking account raided is a much bigger pain.
• Never pay bills using a public computer, like one at a library.
• Have a password lock on your computer, and always log out of your account after paying the bill.
• Regularly check your bank statements and credit report to make sure there aren’t suspicious or fraudulent transactions.

Again, there is no 100% guaranteed, fraud-proof way to pay your bills. But what are the alternatives to electronic checks?

You could always go off the grid and pay only in cash. But having to go to your cable company, electricity provider, doctor’s office, etc., etc., etc. and handing over cash is no way to spend your life. And the odds are far greater you’ll get robbed or lose your wallet than you’d lose your money via electronic fraud.

The only reasonable alternative is the personal check. But compared to that, electronic bill payments are faster, they are more convenient, they offer more protection and they are more environmentally friendly.

So if you’re still debating, put that checkbook in a drawer next to your 8-track tapes and flip phones. Something better has come along. And better yet, it’s something safer.

How Much does Online Bill pay cost?

Online billing set up through a customer’s bank is often free, although the checking account needed to provide funds for payments may require a minimum a balance or assess fees.

Typical costs:

• Online bill pay services range from free to $9.95 per month. At Virginia-based Presidential Bank, online bill pay is free for customers with interest-bearing checking accounts with at least a $500 balance. Another checking account requires a $100 minimum balance, but does not accrue interest and charges $5.95 per month for the first 10 bill payments plus 40 cents for each additional one.
• Bank of America’s online bill pay service is free for checking customers and includes unlimited payments. The company’s checking accounts vary, but generally cost from $8.95 to $25 per month, with fees waived if minimum balances ranging from $1,500 to $10,000 are maintained or if monthly direct deposits are made. The bank’s web-only checking is also free as long as customers receive statements online and conduct deposits and withdrawals at bank-owned ATMs. Otherwise, there’s an $8.95 monthly charge.
• Nebraska-based online bank FNBO Direct allows customers to pay bills through email or with an internet-enabled mobile phone using web-based personal financial management service Mint.com. FNBO makes payments over the internet or– if the merchant does not accept internet payments–using traditional paper checks sent through the mail.
• At New York’s Ballston Spa National Bank, unlimited bill pay costs $4.95 a month with a basic checking account that’s free with a $500 minimum balance.
• Fiserv is a company that handles online bill pay functions for a fee; $5.95 a month for the first 15 transactions, plus 50 cents for each additional payment. Another non-bank based bill pay service, PayTrust.com, also lets users pay bills electronically. The company charges $9.95 per month for 25 transactions plus 65 cents per additional transaction. One downside of the service–receiving a bill and paying a bill are considered two separate transactions, boosting the cost, according to The New York Times Co.’s ConsumerSearch.com.

What should be included:

• Look for a bill pay service that offers customer support 24 hours a day 7 days a week to resolve time-critical financial payment needs. Most larger banks and private bill pay companies offer such assistance.
• Find which creditors can be serviced by online bill pay; Wells Fargo and others with bill pay services list e-billers prominently on their website.
• Find out whether the bill pay service will send conventional paper checks to companies that do not accept online payments, as Fiserv does.
• U.S. Bank permits customers to set up email payment reminders.

Additional costs:

• Making payments or checking balances on a cell phone or mobile device may result in mobile fees that vary according to the consumer’s carrier, according to Bank of America.
• With smaller banks or some private bill pay services, extra fees are charged if customers exceed a set number of transactions. MSN Bill Pay charges $5.95 monthly for 15 payments, and then $2.95 for 5 more payments or 50 cents for a single extra payment. However, larger companies including Bank of America permit an unlimited number of transactions per month.

Discounts:

• Wells Fargo permits customers with bank accounts that are not eligible for free bill pay service to try it free for two months. After that, the cost is $6.95 per month.

Shopping for online bill pay:

• Leading consumer website CreditCards.com gives tips about the pros and cons of paying bills online.ConsumerSearch.com weighs advantages to consumers who sign up for online bill pay through their existing bank rather than another firm. U.S.Bank gives safety tips for people using online bill pay services.
• Top-rated online bill pay services for 2011 are ranked by consumer site TopTenREVIEWS. ConsumerSearch.com also ranks several independent online bill pay companies.
• Complaints involving national banks are handled by the Comptroller of the Currency Administrator of National Banks. Complaints involving bill pay services offered by credit unions are handled by the National Credit Union Administration.
• The FDIC has detailed information on online banking regulation and where to file complaints.
• Not all domestic banks or those chartered outside the U.S. are insured by the FDIC, and customers may not be reimbursed by regulators should the bank fail. Check a bank’s status using the FDIC’s Bank Find tool.

Can you do Bill Pay from a Savings Account?

If you do need to tap your savings to pay your bills, you may wonder whether you can pay the bills directly from your savings account. In short, you can.

However, it’s generally a bad idea to pay bills directly from your savings account. Learn the reasons that you should avoid doing so.

You should try to avoid using your savings account to pay bills directly.

Savings accounts are designed to serve as long-term storage for your extra money.

They aren’t intended to be used like a checking account to make payments to other people or businesses. This fact makes itself known in a number of ways.

Limit of six transactions per month

One thing that makes it clear that savings accounts aren’t designed for paying bills is their six-transactions-per-month limit.

Federal law requires that banks limit the number of withdrawals or transfers that can be made from a savings account to six per month.

You may not have heard of this limit before, and it’s understandable if you haven’t. That’s because this limit ignores in-person and ATM-based transactions.

You may make as many withdrawals you’d like each month so long as you do some in-person. This limit only applies to online and electronic transfers.

If you pay bills out of a savings account, it will be treated as an electronic transfer that counts towards this limit. If you make too many payments or transfers this way, you could run into issues.

Excess withdrawal fees

Excess withdrawal fees are the main way that banks enforce the six transaction per month limit.

Each time you make a withdrawal or transfer after the sixth, your bank must charge you a fee of some sort. Some banks keep this fee relatively low, but others charge $20 or more for each transaction.

You don’t want to pay more than you have to when you’re paying your bills, so avoid using your savings account to pay your bills.

Some banks are even more restrictive, charging excess transaction fees before the sixth transaction in a month. That makes it even harder to use their savings accounts to pay bills.

No checkbook, debit card, or online bill pay

Another thing that complicates the process of paying bills out of a savings account is that they don’t offer the features you need to pay bills.

Savings accounts don’t offer checkbooks, so you can’t write a check and mail it to the company you’re paying.

You also won’t be able to use your debit card to make a payment. You may get an ATM card for your savings account but can’t use it to make purchases or send payments. Finally, banks restrict their online bill pay features to checking accounts.

If you want to combine the benefits of a savings account with these features, open a money market account.

They still have some of the restrictions that apply to savings accounts, like the six-transaction-limit, but they offer more flexibility in the form of debit cards and checkbooks.

Why is Online Bill Pay bad for Savings Account?

There are a number of reasons why paying bills from your savings account is a bad idea.

Meant for saving, not spending

The most obvious is that savings accounts are meant to be used for saving, not spending. You want to use your savings account to build up cash reserves that you can use in an emergency.

Paying your bills out of your savings account will deplete your savings rather than increase them.

The other issue is that paying bills out of your savings can set a bad precedent.

If you get too used to making payments out of your savings account, it may be harder to avoid spending your savings in the future.

You want to be able to differentiate between your checking and savings accounts mentally to be able to make the most of both.

Errors can drain your savings (temporarily)

Another reason to avoid using your savings account to pay bills is that errors can deplete your savings (at least temporarily).

When you go to pay a bill, it’s possible that you’ll accidentally enter the wrong number and send too much to the billing company.

It’s also possible that the bank or billing company will simply make a mistake and transfer too much money out of your account.

Both of these scenarios are bad if it happens to your checking account. You’ll have to go through the effort of correcting the error and getting your money back. It’s especially bad if the error causes you to overdraw your checking account since you’ll incur fees.

The problem is that these types of errors are even worse if you use a savings account to pay your bills. If your savings account’s balance is depleted by a mistake, you’ll lose access to those funds until they’re recovered.

What if you need those funds for something else in the near future?

You’ll have a cash flow problem that could cause more problems down the road.

Paying too many bills may be costly

As we discussed earlier, savings accounts are intended to be long-term storage of extra cash. They weren’t designed to be used for regular transactions, so banks charge fees if you make too many withdrawals or transfers.

People pay a lot of bills every month these days: cable, internet, student loans, rent, credit cards, subscriptions, and more all generate monthly bills. You might be paying a dozen bills every month without even thinking about.

Because savings accounts offer such a limited number of monthly transactions, it’s easy to hit the limit. If you do, you’ll have to pay a fee for every single transaction for the rest of the month.

You could wind up paying hundreds of dollars in excessive transaction fees if you use your savings account to pay your bills.

Forced account conversion

One little-known fact about savings accounts is that your bank can make changes to the account at any time. That includes changing the account from a savings account to a checking account, without your permission.

If your bank feels that you are treating your savings account like a checking account, it may convert it into a checking account.

The bank will base this decision on how many transactions you make each month, and what type of transaction they are. Paying a lot of bills each month can certainly result in your account being converted to a checking account.

When your account is converted, it may be converted to a checking account that charges monthly fees. Usually, there’s a way to avoid the monthly fees, but you have to jump through some hoops.

If your account is converted unexpectedly, you may not be ready to meet the fee-waiver requirements. In fact, you may simply be unable to depending on your financial situation, especially if the requirement is a large balance.

While this is uncommon, it’s worth being aware of. You definitely don’t want to have your savings account converted into a checking account. It could cost you a lot of money and you’ll definitely lose out on potential interest.

While it is technically possible to pay bills out of your savings account, it is a bad idea for a number of reasons.

Just take the time to transfer funds to your checking account and make the payment from your checking account.

What is the Best way to Pay Bills Online?

Electronic bill payment not only eliminates the need to pay for postage, but it also makes the task easier and may help prevent costly mistakes.

Since no one wants to pay extra to manage bills online, it’s useful to know the best ways to pay your bills online for free and how to set up these services.

Use Online Bill Pay Through Your Bank

The best way to pay bills online for free is probably your bank or credit union. If you have a checking account, it’s likely that your financial institution offers online bill pay as a free service. Paying from your bank means that your bank initiates the money transfer.

The process for how to set up online bill payment services is simple. You’ll need to supply your bank with information about each payee (to whom you’re sending money) to have the bank send electronic payments (or checks) in the amount and on the date of your choosing.

Using your bank is a great way to pay bills for regular monthly expenses like utilities on time while maintaining control over the process. You can have recurring payments sent automatically on a schedule or make one-time payments when the need arises.

And if you need to stop paying or pay from a different account, all you have to do is log in to your bank account and make the necessary changes.

But as convenient as online bill pay is, it comes with a few drawbacks. If you initiate a payment without the necessary funds in your checking account, you could incur overdraft fees amounting to around $34 per transaction at large banks and credit unions.

Likewise, if you set up a recurring payment and the amount increases, you’ll pay less than the full amount owed and may face underpayment fees from the payee.

Pay Bills Through ACH Debit Payments

Sometimes, it’s easier to have your payee pull funds from your bank account. This is especially the case if the amount you pay changes every month.

Most service providers (i.e., mortgage, insurance, and utility companies) let you pay your bill for free by setting up ACH debit payments. These are electronic payments that move from one bank to another through the Automated Clearing House network (ACH).

With this approach, you supply the service provider with your checking account information and grant them permission to take the money as needed.

They’ll withdraw money directly from your checking account each time a payment is due (once a month, for example), with no involvement on your part. The modern ACH network allows payments to clear on the same day or the day after they were initiated.

Like online bill pay, ACH debit payments are one of the best ways to pay ongoing bills online and avoid late payments. But it takes slightly less work each month to pay bills via ACH because service providers have direct access to your bank account.

As an added benefit, some lenders offer a lower interest rate on loans you repay through automatic debit payments.

Read Also: How to Avoid Overdraft Fees

The risks of this payment method are similar to those you take with online bill pay, although you have less control over the payment date with ACH debit payments.

While rare, payees may accidentally take too much or pull funds at a bad time (when your account is empty, for example), resulting in overdraft charges.

Use Free Bill Pay From a Third Party

Several financial services companies also offer online bill pay. The service is similar to online bill pay through your bank except you use software or mobile apps to pay bills.

You can set up bill pay in the same way you would online bill pay through your bank by creating a list of payees. You can also have payments sent electronically or by check.

The main advantage of this type of bill pay is that it may be included with a third-party service you already use for budgeting or tracking investments.

For example, if you use Quicken for budgeting, it may be more convenient to use Quicken Bill Manager than online bill pay through your bank to make payments online.

That said, this type of bill pay isn’t always truly free, or even inexpensive. You may need a premium subscription to use bill pay at no added cost. Or, you may only get free bill pay for a limited time.

However, there are some truly free bill-pay services, too. For example, MyCheckFree lets you pay electronic bills to select service providers at no cost.

While the service allows you to make payments to hundreds of businesses, not all companies you do business with may be contracted with MyCheckFree. This means you’ll have to come up with alternative arrangements to pay these companies.