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What is online banking?

Lydia Fitzsimons
Lydia Fitzsimons
  | Edited by Tom Church
Updated 9th November 2021

Do you have questions about online banking? Whether you have concerns about how secure online banking is, you want to know the difference between online and digital banking, or you need help finding the best online bank, Latest Deals has produced this helpful guide.

What is online banking?

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Online banking is the process of accessing and managing your bank account online, either on your phone, tablet, computer or any other device connected to the internet.

Also known as internet banking, online banking aims to make your everyday banking activities more convenient. With it, you no longer need to go into or call your local bank branch to access your bank account, and lots of banks now have free apps to make things even easier to use.

Is online banking free?

Online banking is a free feature, and lots of providers also offer free apps so you can use mobile banking. This is banking on your phone, usually through an app. You’ll need to register for online banking to do this. 

Banks will charge for other services, for example overdrafts. But, online banking can help you save you money, as it makes it easier to stay on top of your finances.

How does online banking work?

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Once you’ve set up online banking, you can manage your finances through a browser or device. Different banks will have different online banking features. Some have free apps, and you may be able to access additional features through the app.

Most providers will allow you to do the following:

  • Pay bills
  • Set up standing orders
  • Manage direct debits
  • Make bank transfers
  • View bank statements
  • Check your balance
  • Check any linked accounts (for example, savings accounts or mortgages)
  • See other available financial products

How do I set up online banking?

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Most banks offer online banking services, so you can contact your bank to find out how to set it up.

Usually, you can register for online banking through your bank’s website. You’ll likely need your account number (this can be found on a previous bank statement).

The process will vary depending on your bank, but usually you’ll be asked some questions, including what sort of customer you are and some personal details. Then you’ll need to enter your account number and card details. 

Typically, this will be followed by mobile authentication. You’ll input your mobile number and then be texted an activation code. If you don’t have a mobile, this can be sent by post.

You’ll then need to enter the code in the registration process, and you’ll be asked to set up your login details. This is usually a customer number or username (which you will be given whilst signing up), a password and a piece of memorable information. It’s important to remember this information, but do not write it down for security reasons. 

With some banks, you’ll need a card reader for online banking. If you need one, your bank will likely order it for you once you’ve registered. If they don’t, they should let you know that you’ll need to order one, and you can do this in your online banking account.

Then, you’re ready to go. You can usually click through to your account summary and see your online banking information. 

If your bank has an online banking app, you can download it once you’ve registered, and log in to get started.

IMPORTANT NOTE: It’s important to note that this is a general overview of what to expect when setting up online banking. The process you go through will vary depending on your bank.

What is a card reader?

A card reader is a small plastic device that some banks require you to use to log in to your online banking account.

You’ll need to insert your card into the reader and enter your PIN. The card reader will generate a single-use code which you can use to log in to your online banking account.

Not all banks will require this, but some major banks including Barclays, Natwest and Nationwide do. Some will use a key card instead which doesn’t need you to insert your card, and some won’t use anything at all.

How to do online banking

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Now that you’ve set up online banking, you can start managing and accessing your account through your phone, tablet or computer.

How to check your transactions

Online banking is a quick and easy way to monitor your transactions. You can log in to your online banking and view your account balance, recent transactions and bank statements.

If you notice any suspicious activity, such as transactions you don’t remember making, you should contact your bank immediately.

You can ‘go paperless’ with online banking, and view your bank statements online only, rather than have them printed and posted to you. Some banks even offer incentives for this, by charging small fees if you want to receive paper bank statements. 

How to do a bank transfer

One of the most convenient features of online banking is that you can transfer money quickly and easily.

You can make payments to:

  • A friend or family member
  • A different account in your name
  • A company account

To do a bank transfer, you’ll need to log in to your online banking account and select ‘send a payment’ (the wording may vary depending on your bank).

Then, you need to enter the sort code, account number, and name of the person or company you’re paying. It’s important to check these details carefully so that you don’t transfer money to the wrong account.

Once you’ve checked the details, you can send the payment. The money should leave your account immediately, and you can view the payment in your recent transactions.

Some banks may require additional security steps when making payments. This could involve entering your password, generating a single-use code, or logging in on a computer, rather than an app. The definite steps will vary depending on your bank.

How to set up standing orders

With online banking, you can set up standing orders. Whether through the app or through a browser, creating and monitoring regular payments is simple.

To do this, you’ll need to log in to your online banking account and select ‘set up a new standing order’ (the wording may vary depending on your provider).

Then, you’ll need to input the payment amount, when the first payment should go, how often payments should be made, and the details of the payee (this would be their account number, sort code and account name).

Standing orders are helpful for making sure any regular payments you make are paid on time and to the correct person. For example, you may set up a standing order with a housemate to cover the cost of bills.

If you log in to your online banking account, you should be able to check what standing orders you have set up. Most banks will also allow you to cancel standing orders using online banking.

How to set up direct debits

Direct debits need to be set up by the company who will be taking the payment from you. So, you’ll need to contact the company to organise a direct debit. For example, with a Netflix subscription, you will enter your details on their website, and they will charge you each month.

Once this is set up, you can view or cancel your direct debits using online banking.

Online banking customer service

Most banks in the UK will allow you to message their customer service team through online banking. 

You need to sign in to your account, and then select the option to ‘send a secure message’ (the wording may vary depending on the bank). This message functions in the same way as an email, but is more secure. You’ll need to log back into your online banking account to check for their reply.

What’s the difference between online banking and a digital bank?

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Most traditional banks offer online banking. However, they still have physical branches that you can visit to get in-person help and advice. Their online banking services are a feature of their accounts.

With a digital bank, the bank itself is based online. This means that all their services are internet-based, and there are no physical branches.

We have a guide where you can read more about digital banks.

Which is the best online bank account?

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When you’re choosing a bank account, it’s important to find the best one for your needs. So, it’s a good idea to think about features you’d want your account to have, and then compare various providers to find the right fit. 

For example, this could include overdraft facilities or in-credit interest. Nowadays, though, it’s a good idea to factor in the provider’s online banking facilities as well.

Most banks have some sort of online banking services available. However, the features will vary between providers, so it’s important to compare them to find a bank that offers everything you need it to.

Online banking app

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Different providers offer different features when it comes to online banking. Most of the major banks in the UK also offer apps, so you can access your money from your smartphone with mobile banking, and online banking apps usually have additional features.

As well as the key money management features mentioned above, some extras you may want to look out for include cheque scanning deposits, spending insights, instant spending notifications, card freezing or blocking, the ability to set spending limits and to round up transactions for saving.

Not all banks will offer these features, but some do, so it’s worth comparing options to find what you’re looking for.

IMPORTANT NOTE: If you’re not tied to the idea of a traditional bank, digital banks often offer extra features, including savings pots, buy now pay later, and fee-free overseas spending. The two most popular digital banks in the UK are Monzo and Starling Bank, and we have guides where you can read more about them.

Compare online bank accounts

To help you compare some of the key online banking features of some of the UK’s most popular banks, Latest Deals has produced this table.

You can see which providers offer what you need, and then just click on the bank name to be taken to their site. We’ve included some of the UK’s most popular banks, but there are lots of other options.

ProviderOnline banking appFreeze cardPay in chequesInstant spending notifications
Santander online bankingYesYes (app only)NoYes (app only)
Lloyds online bankingYesYes (app only)Yes (app only)Yes (app only)
Natwest online bankingYesYesYes (app only)Yes (app only)
Barclays online bankingYesYes (app only)Yes (app only)Yes (app only)
Halifax online bankingYesYes (app only)Yes (app only)Yes (app only)
HSBC online bankingYesYes (app only)Yes (app only)Yes (app only)
TSB online bankingYesNoNoNo
Nationwide online bankingYesYes (app only)NoNo
Co op online bankingYesNoNoNo
Tesco online bankingYesNoNoNo
RBS online bankingYesYes (app only)Yes (app only)Yes (app only)
First Direct online bankingYesYes (app only)Yes (app only)No
Bank of Scotland online bankingYesYes (app only)Yes (app only)Yes (app only)

If you’re not interested in online banking and want to find an account, you can read our guide on the best bank accounts here.

Advantages and disadvantages of online banking

Generally, there are more positives than negatives when it comes to online banking, which is why approximately 76% of UK adults now use online banking, according to CyberCrew.

ProsCons
Accessible 24/7Higher risk of fraud
Keep track of your spendingFeatures vary depending on provider
Make transfers easilyRequires an internet connection
Monitor suspicious activity

Perhaps the key benefit of online banking is how quick and easy it is to access and manage your money. However, the main drawback is that there is a higher risk of fraud.

Is online banking safe?

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Online banking is usually safe. Banks have various security processes in place to protect you and your money. These range from high level encryption, multi-step authentication and instant card freezing.

However, there is a greater risk of fraud with online banking than with the traditional variety. Your phone could be stolen or hacked, someone could steal your login information, or your bank could be hacked.

So, it’s important to take steps to choose a bank with strong security, and ensure that you’re doing everything you can to keep your details and money safe.

What are banks doing to keep you safe?

Banks have different measures in place to protect their customers, and recently there have been regulations introduced to strengthen them. Security measures include:

  • Strong Customer Authentication (SCA)

Banks now must have strong customer authentication (SCA). This involves a multi-layered system for online banking login and online card payments, to better protect your account.

Essentially, this means that there will be multiple security checks when you try to log in, or buy something online. This may involve a password and then a single-use code sent via text or generated through a card reader.

This new regulation is in the process of being rolled out, and won’t be fully in effect for online banking until 14th March 2022 for card payments.

SCA is important as sometimes passwords are not enough to ward off hackers and scammers. Weak or repeated passwords can be leaked, stolen or guessed, and if they gained access to your details, subsequent attacks would be more convincing. Adding an extra step to the logging in or buying process is an easy way to make things more difficult for them.

  • Confirmation of Payee (CoP)

Making payments online can be nerve wracking, as there’s always that fear that you’ll transfer money to the wrong person. Confirmation of Payee (CoP) has been introduced to ensure payments go to the correct person.

Before CoP, banks would process online transfers using the account details only. They would not check the name attached to the account matched up with who you were trying to pay. So, if the wrong digits were entered, your money would go to the wrong person.

This issue was abused by scammers who would impersonate trusted organisations and have money sent to accounts they controlled. 

With CoP, banks not only check the account details, but also the name of the person you’re trying to pay. If the account name and the name of the person you’re trying to pay don’t match up, the bank will alert you. You can then choose to proceed, or cancel the transaction.

So far, the six largest banking groups in the UK (Barclays, Lloyds Banking Group, NatWest Group, including RBS, Santander, HSBC Group, excluding M&S Bank, and Nationwide Building Society ) have been forced to implement CoP, and smaller, challenger banks such as Monzo and Starling Bank have done so as well. 

IMPORTANT NOTE: It’s important to note that CoP is a relatively new concept, and so there may be teething issues. It’s important to double check you enter the digits of accounts and sort codes correctly when making transfers using online banking, and not just rely on CoP.

What can you do to stay safe?

First and foremost, it’s important to choose a bank that has appropriate security measures. As you’ll have read above, there are requirements banks have to follow to keep you safe.

However, there are some additional features you can look out for that might be helpful. A good example of this is card freezing. Some banks offer this feature in their mobile apps, and if you think your card has been stolen or your information is compromised, you can freeze the card to stop any payments. 

Another example is real time spending notifications. These allow you to keep track of any payments leaving your account, so, if you see something suspicious, you can act immediately to prevent further unauthorised transactions. 

As well as choosing a secure account, there are some steps you can take to improve your online banking security:

  • Choose passwords carefully
  • Only log in on a secure network (for example, a private wi-fi network or with mobile data)
  • Watch out for phishing scams
  • Log out when you’ve finished
  • Do not write down your login details
  • Make sure your antivirus software is updated

What if my bank doesn’t offer internet banking?

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If you want to start banking online and your bank doesn’t offer it, you should consider switching to a different provider.

Most banks in the UK do offer internet banking, so you will have options when you’re deciding, and you can also get incentives for switching.

Read our guide on switching bank accounts for more information.

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