Fool's Gold: an idiot's guide to... The mysteries of internet banking are unveiled
Saturday 07 February 2004
Q: what is an internet savings account? A: a savings account you can only access online. You do not deal with bank branches or use the post
What is an internet savings account?
A savings account you can only access online. You do not deal with bank branches or use the post.
How do you open an Internet savings account?
You apply online. An application takes about 10 minutes. You make an initial deposit using a debit card and electronic transfer. Minimums vary, but are usually £1. Money-laundering regulations mean that before your account is active you have to sign a piece of paper sent to you in the post.
How do you pay in?
With a debit card online or by setting up a standing order. Most also take cheques.
How do I actually save?
You get interest on the money in the account and you can arrange a direct debit so regular amounts are paid in automatically. Or add to the account when you can afford it.
What are the leading brands?
Egg is the biggest. The others are Cahoot, an offshoot of Abbey, Smile, linked to the Co-op, and Intelligent Finance, which is part of Halifax.
Is your money safe?
Yes, provided you choose an established brand, and realise that if something looks too good to be true, it probably is. The market leader, Egg, offers an anti-fraud guarantee. So if they screw up, your money is safe. Anti-fraud guarantees are safer than cheques in the post.
Do internet savings accounts offer better rates than conventional ones?
They ought to. What online banks save by not having branches to maintain and paying staff for phone banking or handling post, should be passed to customers. But headline rates and the bonuses are deceiving.
Egg is offering 3.75 per cent plus a bonus of 0.75 per cent for six months. After that, its rates of interest are guaranteed to track the Bank of England's base rate until 2007. Others, including Northern Rock, ING and Abbey, have higher headline rates.If time bonuses are offered, watch what happens after the end. The rate of return can drop below the underlying rate. You should get a higher return by tying your money up for longer, perhaps three years.
Headline rates change constantly so check one of the best-buy tables offered online by Money Supermarket ( www.moneysupermarket.com/Savings) or one of its competitors.
What other advantages are there?
There are no delays waiting for cheques to be cleared. And you are in control of your own money in that you have easy access to it. You decide what happens instead of leaving things to a financial service provider.
Are there any snags?
Dealing online can be irritatingly slow and some websites are cluttered with jargon. Opt for reliable operators with user-friendly systems that keep you in control of your savings and watch its long-term value. The best are designed for busy professionals, the cash happy and time poor. Online services work 24-7 and in the early hours nothing is worse than waiting 25 minutes for your account to open when you want to go to bed. Your chosen banker needs to have the resources to handle high volumes of transactions.
Who regulates this sector of the banking industry?
Online savings accounts have to comply with the law so they have the Financial Services Authority and the Office of Fair Trading to worry about. They also have to comply with the banking industry's code of practice, but not the mortgage code which is voluntary.
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