In this report
Overview
5 ways to protect a smart phone

Banking by cell phone

Mobile banking lets you manage your money wherever you are. Here's what you should know.

Last reviewed: March 2011

The cell-phone and banking industries have conspired to cook up yet another high-tech task for all of us to learn: mobile banking. And it's catching on fast: Some 39 million Americans are already accessing their bank accounts through their cell phones. The good news is that it's a lot simpler and, with the proper precautions, safer than it might appear to be at first.

Mobile banking is similar to Internet banking, which is used by some 50 million Americans. The main benefit is that your cell phone is more portable than even the smallest netbook. There are three mobile-banking modes:

  • Text banking is the simplest method and uses any messaging-enabled cell phone, but its capabilities are limited. You sign up with your bank and get account information by text messaging. For example, if you peck out "Bal" on your cell and text it to MyBofA (692632), within a few seconds Bank of America will text you back with the available balances in your deposit accounts and your credit-card balance.
  • Mobile Web banking provides more functionality than text banking, including the ability to transfer funds from, say, savings to checking, and pay bills. But it also requires a smart phone or a so-called feature phone—a type of cell phone that can access the Internet better than a regular wireless phone but is not optimized for the Web the way smart phones are. You can also use a tablet computer, such as the Apple iPad or Samsung Galaxy Tab.
  • Banking apps provide all the capabilities of mobile Web banking, but they're designed especially for your specific bank and phone model. Javelin Strategy and Research, a financial services research company in Pleasanton, Calif., reports that most banks have apps tailored to the iPhone, and many have them for the iPad as well as smart phones with Blackberry and Android operating systems.

Why bank by smart phone?

Mobile banking is convenient. Anytime-anywhere account access makes seat-of-the-pants money management possible. For example, you can review your account balances while waiting in a checkout line to see if you should use your credit or debt card for the purchase.

You can also transfer money between accounts, monitor availability of deposited funds, and pay bills. Your bank can send text alerts when your checking balance is low or when withdrawals and deposits are posted to your account. You can get alerts for debit- and credit-card purchases that exceed a set amount, which might indicate fraud.

The latest innovation, called "remote deposit capture," in mobile-banking parlance, lets you snap a photo of a check with your cell-phone camera and "deposit" it into your account. You can't get cash out of your cell phone yet, but you can use it to find the nearest ATM.

How much does it cost?

Banks typically charge no additional fees for mobile banking because automation reduces their operating costs. "Mobile banking keeps customers out of the bank branches and keeps them from calling for info, both of which require human staffing and labor costs," says Mark Beccue, a senior analyst at ABI Research, a technology market research firm in Long Island, N.Y.

But you might incur fees from your cellular service carrier. For example, if you buy texting by the message, you'll pay 20 cents per text sent and received, which means it can cost 40 cents to check your balance. That can get pretty pricey, especially if you check balances frequently. You can save money by buying messaging services in bulk. Bundles that let you send or receive 200 to an unlimited number of messages a month will typically cost you $5 to $30 a month.

If you opt to access your accounts via the mobile Web, you'll have to buy data services for your smart phone or feature phone, which can cost $10 to $30 a month for 25MBs to 5GBs of data per month.

For the smoothest mobile Web banking or app-based service, however, you'll want a smart phone, which can cost you $200 or more up front unless you sign a two-year contract. You'll pay less up front if you sign a contract, but the remainder of the phone's cost is built into the monthly bill for the length of the contract.

Of course, your smart phone and data-service costs also pay for the many other data-related things you do with your phone, so mobile banking will represent only a portion of those expenses.

Is it secure?

Fear that a crook will steal money from their bank accounts by using their cell phone is a major reason consumers don't sign up for mobile banking, says Mary Monahan, head of research at Javelin. And such concerns aren't totally unwarranted. Smart-phone users in particular should be concerned about security issues that are both similar to Internet threats and specific to mobile devices (see 5 ways to protect your smart phone).

But numerous mobile-banking security redundancies provide plenty of assurances. For starters, if the worst happens, once you report your phone lost or stolen, your carrier can disable it and your bank can shut off phone access to your accounts.

What if you don't realize for a few days that the phone has been filched? The federal Electronic Fund Transfer Act limits your liability for unauthorized electronic banking transactions to $50 as long as you report the theft to the bank within two business days of learning about it. But because banks want to encourage the use of mobile banking and other cost-saving automation, they might provide even better protection. Wells Fargo, for example, extends its online banking guarantee to mobile banking, and it will restore 100 percent of stolen funds as long as you didn't give your online user name, password, or PIN to others and you notify the bank about unauthorized transactions within 60 days of a bank statement showing the fraud.

Smart-phone browsers provide website authentication and verification on secure "https" sites, while banks employ user names, passwords, and other measures to verify your identity and encrypt the data to make it unintelligible to hackers. Banks don't send your passcodes or user names via text, and banking apps don't store password or identifying information about you or your account on the phone itself.

You can also get security software for your mobile device, which is similar to the antivirus, antispyware, antiphishing protections sold for personal computers. Norton Mobile Security, which was still in beta testing as we went to press, is intended to detect and remove malicious software, block unwanted calls and messages, and remotely locate or lock the phone or wipe out its memory if the phone is lost. If your smart phone doesn't come with security software, consider adding it.

This article appeared in Consumer Reports Money Adviser.

Posted: February 2011 — Consumer Reports Money Adviser issue: March 2011