Happy with your high yield savings account or checking account? We may love the convenience of online bill pay and automatic deductions, but they’ve got a downside.
When our money travels along the ether, we don’t usually think about it much. But according to the Electronic Payments Assocation (or Nacha), the electronic payment network upon which our automated payments travel, the error rate for our money transactions occur at a rate of 38 for every 100,000 bill payments.
That doesn’t seem like much, but if it happens to you or to me, it’s one time too many. Just trying to fix the error by the bank would try the patience of Job (and he had plenty).
Almost everybody uses internet banking and online bill pay systems, and appreciates the convenience of automated deductions. You set it up and you forget about it. Hey, no writing checks, no spending on stamps and no forgetting to send the payment on time. There are however a few problems as indicated above, and others that escape even the careful watch of “Nacha”.
Why I Don’t Set Up My Bill Pay Account for Automatic Deductions
When I was younger and innocent (just a little), I decided to allow my home security provider (who then handled our home alarms) to automatically deduct his monthly fee from my checking account. After a couple of years, I felt that the service was lousy, their headquarters was 600 miles away and they didn’t have an office in my small town, so I told them to terminate the agreement. Little did I know that an apparently simple procedure was going to cause me so many headaches.
First of all, they demanded to know why I wanted to cancel: well, I had every right to do so after 2 years! Then they applied the usual trick of trying to intimidate me with the falsehood that my contract had not yet expired: well it had, 2 months earlier! Meanwhile, the payment kept going into their coffers. Exasperated, I sought a friend who worked at the bank and asked him to terminate the payment. He said that only the payee could do that. As a last resort, I sent an official looking letter with as much legalese I could muster to the security company threatening them with a lawsuit if they didn’t desist. They finally did, without a thank you note, can you believe it?
My takeaway here is this: be very careful to whom you deliver your checkbook which is what you effectively do when you set up automated deductions.
Except for very reliable large companies, such as house and car payments, I stopped automated payments to small outfits. Nowadays, I prefer controlling every monthly payment I have to my creditors such as the phone company, credit card company, utility outfits and whoever handles my memberships. Since then, I’ve had no problems whatsoever.
Who Wants To Deal With Online Bill Pay Gone Awry?
“Sorry, Sir, we just discovered a small mistake in your automated payment. Your account is now delinquent to the tune of $2,000.” Oops! Guess who has to take time off from work or from the kids to spend a whole day at the local bank. Luckily, the law gives you up to 60 days to rearrange your finances. Who wants to go through that? I’d rather have my appendix taken out by mistake; I don’t need it anyway.
So you already know what I’d recommend: stay away if you can from automated payments, but if you really want it, set it up only with large companies who don’t want their reputation dragged through the judicial mud for a few extra dollars, since it affects their bottom line.
Is That Me Writing A Check?
Here’s another point of concern: when you allow companies other than your bank (if you can’t trust your banker, then who can you trust?), to take money out of your account, you also increase the risk of identity theft. The people at Acme Alarms have access to your data. Can you sleep soundly thinking about that?
I believe that giving your private financial data to any company other than your bank is an added risk of identity theft. We all have heard of hard drives and laptops stolen with millions of pieces of financial data on them. It’s not a far stretch for an employee at Acme Alarms to succumb to the temptation. Banks are usually more careful and secure with that information. They have more to lose — much more — since they’re carefully audited and regularly monitored.
So be careful: as a consequence of automated deductions or bill pay correspondence with a non-bank, you may eventually end up with some guy out there who could be writing checks on your account. Be very careful about protecting your identity!