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When it comes to paying bills, you've likely ditched your checkbook—if you ever used one—in favor of online bill pay or autopay. While bill pay and autopay are similar, they work differently. With online bill pay, your bank sends payments to your creditor from your account. With autopay, your creditor takes money from your account. Here's how to decide which method is best for you.
Autopay vs. Online Bill Pay
Before deciding on autopay or online bill pay, it's important to understand how the two payment methods work.
How Autopay Works
Credit card companies, lenders, service providers and other vendors frequently offer autopay to customers. To set up autopay, you provide payment information to the vendor and give them permission to charge you automatically for every bill.
You can typically have autopay payments made directly from your bank account or by using a credit card. Sharing your credit card information can be safer than sharing your bank account information. By law, if you report credit card fraud within two days, you're responsible for only $50 of unauthorized charges. However, most card issuers offer zero liability.
When your bill comes due, the vendor automatically pulls the amount you owe from your bank account or charges that amount to your credit card (some providers may charge extra for credit card payments). Autopayments recur monthly, so you can "set it and forget it."
How Online Bill Pay Works
Online bill pay is a service most banks and credit unions offer customers for free. To use online bill pay, log in to your bank account online or in the banking app, and add billing information for the companies you plan to pay.
Once you've added a company into the system, you can either schedule payments manually or set up recurring payments for the same amount each month. On the date you choose, the bank initiates a payment directly from your account to the vendor.
Even companies that don't accept electronic payments can be paid with online bill pay. The bank sends a check to the company for you and even pays for postage. Online bill payments can generally be scheduled for the next business day or even the same day. However, payments requiring a check take longer to process, since a check must be generated and mailed.
| Online Bill Pay vs. Autopay | ||
|---|---|---|
| Feature | Online Bill Pay | Autopay |
| How payments are made | "Pushed" from your bank account | "Pulled" from your bank account |
| Option to pay with credit card | No | Yes |
| Manual payment option | Yes | No |
| Recurring payment option | Yes | All payments are recurring |
| Payments automatically adjust when bills vary | No | Yes |
| Vendors can access your bank information | No | Yes |
| Can pay vendors who don't accept electronic payments | Yes | No |
| Potential to overdraw bank account | Yes | Yes |
| Possible discounts for using payment method | No | Yes |
Pros and Cons of Automatic Bill Payment
Both autopay and online bill pay eliminate the need for checks and postage and worries about checks being stolen or lost in the mail. Both can help improve your credit score by preventing late or missed payments that can negatively affect your credit. However, each has its pros and cons.
Online Bill Pay: Pros
- You can easily manage your bills, check your bank balance, transfer funds and more all in one place.
- Service providers or creditors don't have access to your bank account information.
- You control whether to automate recurring online bill payments or schedule payments manually each month.
- Even vendors that don't accept electronic payments can be paid with online bill pay.
Online Bill Pay: Cons
- Unless you change them, recurring payments go through even if you cancel a service or don't have a bill due that month.
- Recurring payment amounts won't automatically change if your bill changes; you must change them manually.
- Your bank account could become overdrawn if you don't have enough funds when a payment is due. That could mean late fees from creditors and non-sufficient fund fees from the bank.
Autopay: Pros
- If a bill's balance changes from one month to another, autopay automatically adjusts to pay the full amount.
- Companies sometimes offer discounts for using autopay.
Autopay: Cons
- Autopay may not be available from all your vendors.
- If you have insufficient funds when the autopay is due, your bill won't be paid, and both the merchant and the bank may impose fees.
- If the vendor you're paying isn't trustworthy, your bank account information could be at risk of fraud.
- When using a credit card to pay your bills with autopay, you could run up a high balance unless you pay the credit card bill in full each month.
- Using a credit card for autopay could push your credit utilization ratio higher. Ideally, you should use less than 10% of your available credit; using 30% or more can hurt your credit score.
How to Choose Between Autopay and Online Bill Pay
To choose the best payment method, weigh the pros and cons and consider which matter most to you. However, there are some situations where one payment option might make more sense than the other.
- Do your bill amounts vary from month to month? Autopay ensures your bills are paid in full without any action on your part.
- Do you want to earn credit card rewards? Using a rewards credit card to pay bills with autopay can help you rack up cash back, points and other perks. Just keep an eye on your credit utilization ratio and pay your balance in full each month.
- Do you want the convenience of managing all your bills in one place? Online bill pay could be best for you.
- Do you want to be actively involved with your bill payment? Scheduling online bill pay manually helps streamline your finances without removing you from the process.
- Are you worried about data breaches? Because financial institutions use encryption, multifactor authentication and other technology to protect your information, online bill pay can be safer than autopay.
The Bottom Line
Automating your bill payments via online bill pay or autopay can simplify your financial life. Making payments on time can help improve your credit score too. But even after setting up autopay or online bill pay, be sure to keep an eye on your bank statements, credit card statements and other financial accounts for potential signs of fraud. Free credit monitoring from Experian can make staying on top of your finances easier by alerting you to suspicious activity, changes to your credit utilization and more.