Automated Payments vs Online Bill Pay

by Mike on February 17, 2010

While I appreciate the Internet and all the convenience it has to offer; I am not ready to set my payments on autopilot. Automatic payments are offered by most companies you would owe money to (utilities, debtors, etc). When you set up an auto payment, you give the receiving company your bank account information and permission to withdrawal a predetermined amount of money at an agreed upon frequency (usually 100% of a monthly bill or payment). With auto payments you’ll rarely run the risk of being late or missing a payment. You can setup your payments and move on. However, I am not a fan of auto payment plans for the following reasons:

  • You are giving sensitive banking information (routing numbers / checking account numbers / credit or debit card account numbers) to each entity. The more you spread this information around, the greater your risk for Identity theft. You should assume that any other site is not secure and poses a risk to your information.
  • While the set it and forget it approach may appeal to some people, personally I prefer a slightly more active approach – especially paying off debts! There is something motivating about watching the debt balance diminish from month to month. It also forces me to be on the lookout for rates and policy changes.
  • You are giving control of your finances to another institution. Should a financial need arise, you may need to postpone your payment for a couple days. Forgetting to make these adjustments could prove costly as you’ll run the risk of being hit with a late fee and/or bank overdraft fees. (Note: Hopefully an emergency fund is in place to deal with unforeseen circumstances!)

Instead, I prefer the convenience of online bill pay. In fact, it’s one of my requirements when choosing a financial institution. The features and benefits of online bill pay are:

  • You load your various accounts in a centralized location as opposed to your financial information out.
  • Maintain control! You dictate when and how much money is leaving your account. While rare, billing companies do make mistakes. If you have a dispute regarding a balance you won’t have the added frustration of having the money deducted from your account.
  • Enforces active monitoring and discipline. While there is a risk of human error, these can be minimized by taking advantage basic bill pay features. It is easy to set up installment payments on a recurring basis. I currently do this with my student loans and car payment since the amount is the same each month.
  • In an effort to go green, most companies offer paperless billing option that will allow you to view your bills online and / or have them emailed to you. Some companies are easily integrated into bill pay systems allowing you to see the amount owed and pay with 1 click. This eliminates the risk of typing in the wrong amount.

Auto payments and bill pay through banking are similar in that they are services that are designed to add speed and convenience to the bill paying process. However, the similarities end there.

Do you use auto payments, bill pay, a mixture or both, or neither?

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{ 10 comments… read them below or add one }

Jeff February 17, 2010 at 12:30 pm

Nice write up Lakita,

I however love my autopilot payments. I have many accounts setup in ING that payments are drafted from. The companies never get my main checking account number just a number for their account (i.e. Consumer’s Energy only gets the info from my Utilities account). I understand the “active” style of management but I choose to do it a little differently. The moment the bill hits my email, I review it for changes and problems. If it looks good, I forget about it because I know my sinking fund account will take care of it. If it looks wrong, I can call right way and get it handled.

I only snowball one debt at a time so that debt becomes my focus. The snowball debt is NOT on autopilot. That account is very important and requires more time to plot and scheme the payoff process.

All financials are reviewed monthly for my monthly net worth post, it helps to see how all the hard work is paying off.

Keep up the GREAT work young lady!!
.-= Jeff´s last blog ..Giving It Up =-.

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PF Journey February 17, 2010 at 3:11 pm

Jeff,

Sounds like you have a great system that combines autopayments and some interaction on your part. Thanks for sharing, I’m always interested in how other people “make it work”

Kita

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Elle February 18, 2010 at 7:32 am

Great post; I’m on the same page as you! I know someone who had her direct deposit short hundreds of dollars due to an HR error. Since she gets paid on a monthly basis, she tried to negotiate lower payments with some of her bills until HR fixed it.

All of them said they’ll make a note and take out a smaller amount. Some bills took out the regular amount, though, and it caused a bunch of overdraft fees.

I also like having the control of when I need to make the payments and online bill pay does that for me.

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Gail February 20, 2010 at 2:53 pm

I do online banking and never again on autopilot. Don’t feel safe allowing the utility companies or whoever to take control of my bill(s). I used to have two utility companies on autopilot until I came down with stage 4 leukemia and lymphoma and was sent to the hospital right away. Since I am a divorced mother with a disabled child, my mother had to move in for 7 months while I dealt with cancer. She had no clue where all my bills were and at that time, it became insufficient funds. I had to explain to the utility companies my situation and they waived those fees. I have since learned to make notes somewhere for others to keep tabs on my bills while I am incapacitated or unable to pay those bills. I now use online billpay and feel safer knowing that I paid the bill and to make sure there is enough money to cover. Also because of my past experience, I do have postal billing instead of the ebill. I love the internet and enjoy going green but not to the extent where family members are unaware of routine such as my incident. Enjoy reading your blog.

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PF Journey February 20, 2010 at 5:49 pm

Gail,

I’m glad the bank worked with you to waive those fees. It sounds like it was a trying time to say the least! I use e-bills, but you brought up a good procaution…should you need someone else to take care of your bills and they are coming to an inbox they don’t have access to, that could be a problem.

Thanks for sharing your story and taking the time to comment!
Blessings!
Lakita

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Ronnie February 23, 2010 at 9:32 am

Hi! I just found your site and I’m enjoying your posts. Very informative! I had automatic bill pay prior to my credit union setting up online bill pay, and another problem is that, when you cancel a service, if the company doesn’t process it correctly, it continues to be debited from your account. I had this issue with Comcast. I’d allocated those funds for something else because I’d canceled my service, and ended up scrambling to cover the other charges until Comcast refunded me my money. That was a pain in the rear, and the last time I ever did automated payments.

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PF Journey February 23, 2010 at 9:41 am

Hi Ronnie,

Welcome to PFJ! I’m glad you find the site informative! That is another problem…I’ve had that happen before. Also, if your auto payment is tied to a debit card and that card expires or is changed for any reason…you’ll need to remember to update all your payments or risk default and late fees.

See you around!
Kita

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PF Journey February 23, 2010 at 9:45 am

@Elle,

That’s a perfect example of how automatic payments can spin out of control. I hope that person was able to get some or all of their overdraft fees refunded!

Kita

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RainyDaySaver April 5, 2010 at 7:34 pm

I don’t use automated payments for the simple reason that I may want to adjust my payments at times, depending on how our paychecks and bills are timed each month. I only use one auto-withdrawal — for my car insurance. It’s a small-enough withdrawal and it saves us $4/month to have it taken out automatically rather than writing a check.
.-= RainyDaySaver´s last blog ..Happy Easter! =-.

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TheGooch September 7, 2011 at 9:12 am

I used to allow automatic debits, but no longer. I’m converting everything to “push” bill pay where possible. It’s important to be in control!!
.-= TheGooch´s last blog ..Save money shopping online with Ebates! =-.

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