Is It Safe to Pay Bills Online?

The real shocker? It may actually be safer to manage your personal finances electronically. In fact, researchers find it's more likely a thief will lift financial information -- like a bill or a bank statement -- from your mailbox than from your computer [source: Huddleston].

Yet there are dangers. Although it's possible to pay bills electronically while you're away from home, we have one word of advice: Don't. Putting personal information into a public computer, like the ones you'll find at libraries, airports or hotel business centers, introduces risk. Criminals can access these computers, install key-logging software and voila, your credit card numbers, passwords and PIN numbers are ripe for the picking. You're not much safer on your personal laptop or smart phone if you connect to a public Wi-Fi network, where even moderately tech-savvy criminals can steal your data right out of the air.

So now that you're back in your home office to pay bills, which browser offers the most security? The three primary Internet browsers now available -- Opera, Internet Explorer and Mozilla Firefox -- each have security measures like encrypted connections or warnings when a Web site appears unsafe. Of course, if you're not updating your browser as each new browser version is released, these safety measures will lag.

It's also a good idea to change your personal finance passwords once every two months; buy and install anti-virus and anti-spam software and update the software frequently [source: SafeShopping.org]. Type Web addresses into your browser instead of clicking on links sent via e-mail. This will help protect you from phishing, which occurs when a bank, company or organization is impersonated by e-mail; consumers receive fake e-mails, believe them to be legitimate, and then share personal or financial information. The e-mails also may contain links that, when clicked, lead to fake Web sites that capture user identities and passwords.

Many companies have Web sites through which you can pay what you owe them. For example, you can pay your Chase credit card on its corporate Web site, then navigate to Capital One's Web site to do the same. In addition, many banks and credit unions offer online bill pay services, making it possible to pay multiple bills from one online location. Some banks may charge a nominal fee for online banking, but many offer the service at no charge to customers.

There also are third-party online bill pay services provided by Web sites like MyCheckFree.com and PayTrust.com. These free services allow consumers to receive, view and pay online bills from one secure Web site. You can also pay bills online with personal finance software. Quicken2010 Deluxe (sister company of PayTrust.com and owned by Intuit) is one example.

Wherever you elect to pay bills, you should first make sure the Web site is secure. Web page addresses, also known as URLs, begin with "http." However, to pay bills online, the Web page should always start with "https," which signifies a secure connection. Also, look for a padlock icon, usually in the top or bottom right corner of the browser window. Clicking the lock will reveal the site's security certificate [source: SSL.com].

Once you've decided where to virtually pay your bills, you must decide whether you want to pay them manually or automatically -- or both. Paying bills on a case-by-case basis is a solid move when the amount of the bill varies, as with utility providers, or when the bill is infrequent, as with bi-annual insurance payments. If, however, the dollar amount stays the same month-to-month, scheduling a series of future automatic payments can eliminate the risk of late fees. Keep in mind that automatic payments will be withdrawn even if you don't have enough funds in your account, and this can trigger overdraft fees.

Using a credit card, rather than a debit card, affords a few additional protections when paying bills online. Under federal law, fraudulent credit card usage can be disputed with the card issuer and payment can be legally withheld until it is resolved [source: Barrett]. The downside is that credit cards aren't linked to your bank account. Unlike a debit card, which automatically deducts transactions from your checking account, a credit card can result in unpaid balances and pending interest charges -- unless you are disciplined to pay the balance each month.

If worries about identity theft and financial fraud are keeping you from paying bills online, consider a disposable transaction number. Debuted by American Express in 2000, this single-use number can be assigned to a credit card customer and used to make a transaction online [source: Lindsey]. Bank of America, City Bank and Discover offer similar services [source: Goldwasser].

If your card issuer doesn't offer disposable numbers, consider an alternative payment service like Bill Me Later or eBillMe. For example, eBillMe requires only an e-mail address to activate and allows shoppers to peruse more than 800 stores linked through the company's shopping portal. Users select the eBillMe option during checkout, then log on to their personal bank account to complete payment. The service offers protections similar to those of credit card issuers [source: Huddleston].

Known as "online wallets," PayPal or Google Checkout allow you to make payments or purchases online without revealing credit card or bank account information. Neither offers a full range of online banking services, but both are relatively easy to set up and use. Google Checkout and PayPal both have limited safeguards, but include the ability to dispute a questionable charge. A comparable service from Amazon.com, known as the Amazon Flexible Payment System, is in its final stages.

While fears about fraud and theft are a reality for many, a few precautions can make paying bills online a convenient and organized way to keep personal finances on track.

For more information on online bill payment and other personal finance topics, visit the links on the following page.