A User's Guide to Cellphone Banking

Your phone can save you from overdraft fees, but beware of expensive text messaging.

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When stopping at the grocery store to buy milk on your way home from work, it's easy to end up with a few more things in the cart than you'd planned. You do a rough tally of your merchandise in the checkout line and wonder if there's enough money in your checking account to use your debit card. Should you put a few items back on the shelves? Overdraft fees, which often top $30, can bite.

Enter cellphone banking. Now you can whip out a mobile phone, type "bal," and send it to the bank. Within moments, your account balance is beamed to your phone. A few keystrokes more can transfer money from your savings account if you have insufficient funds to cover the balance. Here are tips for becoming a whiz at mobile banking.

Compare banks and systems. Six of the top 10 U.S. banks now offer some form of mobile banking, as do a host of smaller banks and credit unions, according to Red Gillen, a senior analyst for technology consulting firm Celent. Top cellphone-based transactions include balance requests (62 percent), transaction lists (17 percent), fund transfers (11 percent), bill and other payments (8 percent), and password changes (2 percent), Celent found.

Other useful services include locating your bank's nearest ATM to avoid fees or having your bank text you when your balance drops below a given threshold or a large purchase is made. "Those consumers would be able to be notified of anything strange going on with their account immediately," says Jean Garascia, an associate analyst for financial services research firm Javelin Strategy & Research.

There are now three different systems for banking on your cellphone, which vary by bank: using a Web browser on your phone, downloading software from your bank, or text messaging. Some 84 percent of cellphone users have Internet capability on their phone, and 43 percent use text messaging, Javelin found. If required, signing up for and downloading your bank's software will take several minutes on your personal computer, and you'll need to have your cellphone model and number, plus the name of your wireless carrier. Using a mobile Web browser is similar to doing Internet banking on your personal computer.

Avoid big fees. Although banks are rolling out mobile services free of charge, many first-time mobile-banking users will be in for a rude awakening when they get their phone bill. Mobile users who do not have a "data plan" that allows for unlimited Internet use will find extra charges on their cellphone bill. The cost to add a monthly data service to your phone can range from $5 to $49 and varies by mobile operator, according to Bob Egan, chief analyst for financial services research firm TowerGroup. Text message charges, if not included in your plan, can be as high as 25 cents for each message sent and received. "Figure out what technology your bank uses," Gillen advises. "Then determine what kind of plan you will need to support that."

Text with caution. You should also examine the fine print before signing up for mobile banking. "You want to be sure that the bank is going to extend the kind of credit and safety guarantees that they have for debit cards, ATMs, and other services if money or information is stolen," Egan says.

Should you lose your phone in a cab or on the bus, you run the risk of leaving sensitive financial information on the phone. Text messaging is unencrypted, and messages are typically stored on the phone. Most mobile-banking services don't require the use of account numbers or other personally identifiable information over the phone, so your phone generally should contain less information than typically found on an ATM receipt.

But, as a precaution, you should report a lost or stolen phone to the cellphone company and the bank. Frequent mobile Internet users should consider installing antivirus software to safeguard mobile devices. Although fraud is not yet common on mobile phones, "history has shown us since the days of Billy the Kid that the bad guys follow the money," Egan says.