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What Is Online Bill Pay? How It Works and Why to Use It

Written by Ken Tumin | Published on 9/03/2020


Online bill pay is a helpful tool that allows you to pay multiple bills to different providers from one central dashboard. Most financial institutions have adopted online bill pay as a core product feature of the bank accounts they offer, typically at no additional cost. This article covers everything you need to know about online bill pay, including why to use it and what to watch out for, as well as how to set it up to simplify your financial life.

In this article we will cover:

What is online bill pay?

Online bill pay is a service that many banks and credit unions offer to help customers pay their bills quickly and seamlessly. With online bill pay, you can have money sent directly from your bank account to those you owe with the click of a button.

You can use online bill pay to pay for a number of bills — rent, mortgage, cable, phone, utilities and credit cards — all from a single dashboard. Payments can typically be sent automatically.

How does online bill pay work? 

While it’s been possible to pay bills online for many years, customers used to have to pay each provider separately using a credit or debit card on that provider’s website. Now that banks and credit unions are improving their bill pay services, it’s one-stop shopping: You can control all of your payments from a single dashboard.

Bill pay services are usually a free feature of bank accounts, typically checking accounts. After enrolling and providing your bank with your bill provider’s information, your bank will then pay your bills on time, deducting the bill payment from the funds in your account. 

Typically you will schedule for your bill to be either a one-time payment or to be paid automatically on a recurring basis. If you are required to pay a bill via mailed check, your bank also can take care of writing the check and mailing it to your provider.  

Why should you use a bill pay service?

There are an array of advantages with using a bill pay service, including: 
  • Reliability: A core feature of bill pay services is that your bank or credit union guarantees on-time payment, as long as you have sufficient funds in your account. This means you won’t face the consequences that can be associated with late or missed payments, such as hefty late fees or dings to your credit score. It also takes the pressure off of you to plan for and remember all of your bill due dates, and automates the process.
  • Convenience: Instead of having to visit 10 separate websites to pay your bills each month, bill pay allows you to simply sign in to your bank’s portal and pay via the central dashboard or have the process completely automated. 
  • Potential to cut costs: With bill pay, you don’t just save money on the cost of potential late fees, but also on the costs associated with mailing physical checks. Your bank will take care of writing the check and mailing it to your bill provider, which means you can save on checkbooks and postage. 
  • Option of eBills: In addition to bill pay services, some financial institutions also offer the option of eBills, which delivers the paper bills that you receive and pay through bill pay electronically instead. This offers benefits like cutting back on the amount of paper mail you receive and having all of the information regarding your bill — ranging from the invoice to payment — in one place.

What to watch out for when using a bill pay service

While online bill pay is certainly a convenient service, it’s important to take the following precautions: 

  • Make sure to keep your account funded: The ease-of-use offered by bill pay can lull you into forgetting about the need to proactively manage your bills. If you’ve set up a recurring payment, you must have sufficient funds in your account every time that payment occurs. If you don’t, you could face penalties like late fees or even miss bill payments.
  • Keep an eye out for a lack of transparency: Some bill pay services may send payees a check and debit your account even without the payee depositing or cashing the check. You may be surprised when the payee informs you that he or she has not received payment. This could result in additional fees if you are late on a payment, not to mention the potential risk of your check being fraudulently cashed without your knowledge, which can take time and effort to resolve.

    To avoid these issues, look for a bank that offers higher levels of transparency with their bill pay service. Wells Fargo, for example, provides consumers with the date that the check is cashed in your payment history if it’s a paper check, while Ally Bank will indicate the payment as “paid,” even if it was just sent (and not yet cashed). Additionally, Ally does not have a clear policy on when money for your payment is withdrawn from your account — instead, it says that with some checks, money is withdrawn on your scheduled delivery date, while with others, money is withdrawn when the payee deposits or cashes the check.
  • Practice safe online banking: Another risk of online bill pay involves the inherent insecurity of online banking in general; doing financial business online can expose you to potential risks if security breaches occur. To minimize this risk, create strong passwords and always use a secure network when signing into your bank account online. Avoid doing online banking — including bill pay — on public Wi-Fi networks.

How to set up online bill pay  

While each bank or credit union’s process for setting up online bill pay will differ, you generally can expect to take the following steps: 

  1. Sign in: You can sign into your account through your bank’s online portal or mobile app, and then toggle over to its bill pay feature. 
  2. Add a payee: You’ll then need to add a payee by providing your bank or credit union with your bill provider’s information, which will likely include the company name and address, as well as your account number and the name on the bill.
  3. Enter payment information: Next, you’ll need to select how much you’d like the payment to be, whether the full amount or just part of it. You’ll also have to specify the date on which the payment should be made and whether it is a one-time or recurring payment. 

Checking accounts that offer online bill pay services 

The checking accounts featured in the table below have each been identified as one of our best checking accounts available nationwide, and all offer bill pay services to customers at no additional charge.

Account  Monthly service fee
Aspiration Spend & Save $0 ($7 for Aspiration Plus) 
Paramount Bank High Interest Checking  $0
FNBO Direct Online Checking  $0
First Internet Bank Free Checking $0
  |     |   Comment #1
I recently used the transfer function of bill pay to send $25,000 from one CU to a bank. They did not use ACH but instead a paper check. The bill pay merchant immediately withdrew the $25K from my account and the paper check was not deposited until one week later. I lost 7 days of interest on the $25k at 3% $2.05 per day or over $14. Is this how they finance this service?
  |     |   Comment #5
Yes, that sounds very strange and non-standard to me as the whole system uses ACH to move monies. My best suggestion is to find a better financial institution.
  |     |   Comment #4
It seems very odd to me that banks require a checking account in order to utilize their electronic bill pay service since ACH transfers completely eliminate the need for paper checks. Why have a checking account when you don't have, want, or need paper checks for paying bills? It seems really stupid and redundant to me since a single pool of money can just as easily be used for savings as well as bill paying.

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