One of the most important aspects of polishing my credit into a worthy rating over the past couple of years has been the conversion to mostly online banking and the complete transfer of all of my bill payment into electronic form. For some, especially those born after 1982 — known as Generation Y, never having lived in a world without remote controls and developing immersed in digital technology and the Internet — this is a given. A nineteen year-old co-worker of mine recently admitted he’d never in his life sent a piece of snail mail. For younger people and some tech-savvy older ones, paying bills online has always made more sense.

I was born in the late ’70s, however, and was indoctrinated in the old-world, luddite ways of postage stamps and paying attention to due dates in accordance with the geographical locations of creditors. When, in my early twenties, I lost focus on such labors, my credit score suffered terribly; and it has been through the conversion to online banking that I’ve made a sound recovery.

Banking away from the bank has always held counter-weight in individual financial fitness. A physical deposit or withdrawal can be a dangerous weapon without a kept record of it somewhere. Likewise, a budget stoppers up the constant flow in and out of the account.

For many it’s still the physical act of walking into a bank or dropping a bill into a mailbox that makes money management a tangible thing; but more and more, time does equal dollars. Saved hours and reduced stress may be largely noted each month in the time it takes to prepare bills for the snail mail in comparison to logging into an online account; and if you have problems with deadlines, your computer can remember them and post bills on time for you, eliminating costly late fees.

Since ATM’s were first legally approved in the early 80’s, the need for human banking interaction has steadily declined. In 1984 federal courts legalized the nationwide ATM networks, and withdrawals became dangerously and conveniently available twenty-four hours a day. Telephone banking and its concurrent automated systems simultaneously became more popular. Today, it’s possible with many banks to complete loan applications, make investment purchases and redemptions, order checks or debit cards, or talk to a teller via telephone. Some banks even charge a fee if a customer chooses to discuss a matter with a teller that could otherwise be addressed via automated system. By 1995, 90% of all transactions by value in the United States were made electronically.

Now, most banks, including most private credit unions, provide online banking options for customers, who need only register for a username and a password on their bank’s homepage. Literature and instructions for online banking are usually available inside local branches; and the first time I initiated online banking several years ago, a banker willingly set me up inside the branch.

And, to make banking even more available, a group of the largest U.S. banks are launching a mobile Internet connectivity banking service. This still under-developed service will bring the ease of online banking into the accessibility of the cellular. A few banks already offer a downloadable application, and the recently-released iPhone offers full Internet banking capabilities. The downfall for now, though, will not be bank fees but fees administered by the cell service carriers.

Each bank has a slightly varied online set-up, but I’ve used three now over the years; and they are all essentially the same. Once on your bank’s website, the first step is to register for a username and password, and there is a step-by-step process to lead you through that. Once logged in, my bank’s site takes me into my account summary, giving me balances for each of the three accounts I currently have with them. From there I can then click specifically on an account and review current activity. With my bank, I have the luxury of all activities displayed. When a debit card it used as a credit card, transactions are generally held for three days before registering; my bank, however, records these for my viewing as “pending”. Not all online systems show pending debits, so it’s important to know whether yours does before relying on it to show an accurate daily balance.

At the top of the page, there are generally tabs directing users to different activities. The one I most often visit is the Bill Pay tab. Bill Pay can be daunting, but it is insanely easy to use, and the benefits are worth it. Just make a pile of your creditors with their addresses, and start Adding Payees (there should be an easy route or tab to this). The computer will do most of the work. From there, I prefer to set automatic payments to be sent out on a specific day each month by my bank. With this, I have absolutely nothing to think about, which I love. Other, more control-oriented people, or those with more complex situations, tend to select a manual payment option, which allows users to go in each month and direct the payments on their preferred days. I pay everyone online: doctors, credit card companies, even the government for my student loan (which some banks warn against). The system also alerts me when a scheduled payment date has been changed due to falling on a weekend or holiday, or if I’ve accidentally scheduled two payments in one month.

The Transfer capability is also an important one. Once my paycheck is in my checking account, I can go directly to my online account and transfer funds into my savings or vice versa. I’ve recently started tinkering with the plethora of other options as well. My bank often sends me messages regarding new online capabilities, and I’ve actually started reading them. They tend to be quite useful. And there are other management programs available too, like a structured savings plan program, designed to help users meet specific goals. Online banking information can also be connected to a personal Quicken program which Rich wrote a great post about.

For potential risks of online banking see Allison’s Phishing post.