Did you know your account details can stay on file even after you stop using auto-pay?

Dubai: Using automatic payments allows you to pay your bills on auto-pilot. You don't have to log into your various online accounts to pay your bills online, either. When set up correctly, automatic payments will simply pay your bills at the frequency you indicate, with no further action required on your part.

There are two basic methods for setting up automatic payments: through your own bank or through each individual creditor's website. Here is what you need to know.

Automatic payment options through a bank's online bill pay

Almost every bank offers online bill payment. This allows account holders to send money from their bank accounts to whatever platform they want, at whatever frequency they want. Some banks physically print cheques and mail them to your creditors, while others will transfer money electronically.

You can set up your automatic payments by logging in to your bank's ‘bill pay’ website, setting up a new payee, and entering the account number of the creditor or utility you want to pay in the appropriate fields.

Most banks allow you to set up recurring payment frequencies — which means you can schedule your credit card payments, for example, to send each month before they're due and not have to worry about sending the payment on time.

Some banks will not allow you to create recurring payments, in which case you will still need to sit down at the computer every time you need to make a payment.

The benefit of using a bank's online bill pay service over individual creditors' websites is that you can log in to one account and view all your scheduled payments in one place rather than logging in to multiple accounts.

Automatic payment options through your creditors' websites

The other option you have for setting up automatic payments is through each of your creditor's and utility account's websites.

Most credit card companies and utilities have online account management systems that allow account holders to log in and schedule payments. Many also offer options for setting up recurring payments — for example, you can set up most credit card accounts to pull money from your bank account each week, bi-weekly, or monthly.

Many utility companies allow you to set up automatic payments that will pull your payment from your bank account when it's due without any further action from you to make sure it gets paid on time.

Automatic payment pitfalls to watch out for

With all of the benefits offered through automatic payments, there are some pitfalls and potential problems to watch out for.

The biggest pitfall people sometimes experience with automatic payments is a little mistake that can add up to hundreds of dirhams.

Beware of ‘overdrafts’ with auto-payments

Let's say you set all of your accounts to get paid automatically, but then have an unexpected change in your income. If your income fluctuates, or a salary isn't deposited on time for any reason, you may find yourself with a bank account balance that isn't high enough to cover all of your automatic payments.

"Autopay works well for fixed payments. But it can be dangerous for payments with amounts that fluctuate. If you’re hit with an unexpectedly high, say, credit card or utility bill, that can drain your checking account in an instant," cautioned Ebin Wilson, a lead financial analyst.

"This results in overdrafts (explained below) that can quickly add up. If you had not been using automatic payments, a change in your income or delayed deposit isn't as big of a deal, since you could just hold off making your bill payment until the deposit clears."

Can I risk ‘late fees’ even after I have set up auto payments?

Even though it’s called ‘automatic’, a payment still takes time to process and reach a merchant or service provider.

Confirm how long it takes for payments to arrive so you can set payment dates accordingly and avoid late charges.

There is also often a fee involved for auto-payments

If you are using your bank's online ‘bill pay’ feature, make sure you know whether or not there is a fee for this service.

Some banks offer online bill pay through savings accounts or checking accounts for free, while others charge a monthly service fee for access. Most online banks offer online bill payment for free.

There is often a limit to how many auto-payments are possible

"When you use an individual creditor's website for automatic payments, sometimes there is a limit to how many payments will be made automatically before you need to log back into your account and schedule more," explained Bryden Wood, a banking analyst based in the UAE.

"Thus, you might set everything up to make your payments on time and then realise three months later your automatic payments have stopped. Since you had been expecting your payments to get sent automatically, there's a good chance everything will be late before you realise the automatic payments ceased."

This is why experts advise doubling checks of each of your creditor's and utilities' websites for details on the frequency of payments, and if you have accounts that only allow you to schedule a limited amount of payments at a time before you need to set it up again, make sure you mark it on your calendar or set an alert on your phone so you remember to log in and set it up again.

Risk of service providers making a mistake that can prove costly

What if your phone company accidentally withdraws your monthly payment twice? Or your cable provider adds a zero to your balance and takes out Dh850 instead of Dh85?

Such mistakes, while rare, can happen, and redressing them takes time and effort. Unless you keep a regular watch over your statements or monitor them regularly, you may not even notice a repeated charge.

Experts reiterate that you not take an out-of-sight, out-of-mind approach when it comes to automatic payments. Even though this service is meant to simplify your life, it can have the opposite effect if you’re not careful.

There have often been hassles with unsubscribing auto payments

"Automatic payment plans can be set up in a matter of minutes. But stopping them can be much more difficult. Sometimes you have to notify your bank and your merchant, and you may even need to do it in writing," Wilson added.

Autopay works well for fixed payments. But it can be dangerous for payments with amounts that fluctuate.

- Ebin Wilson

"Still, they might not get the message the first time around, so be prepared to closely monitor payments if you’re transitioning between pay accounts."

There have been numerous instances where people have shelled out money for a service they haven’t used in years. It turns out, this is a pretty common auto pay problem, common enough that financial regulators in several countries worldwide have a section on their website on how to stop automatic payments.

"Be aware that banks commonly charge a fee for executing a stop payment order. Further, cancelling your automatic payment does not cancel your contract with the company, explained Wood.

"If you want to cancel a contract for a service, like cable or a gym, be sure to cancel your contract with the company as well as telling it to stop automatic payments. If you cancel an automatic payment on a loan, you still have to make payments on that loan."

Bottom line?

A key downside you can always keep in mind is the risk associated with your account information always staying on file. Using auto-pay means all your information is in the service provider’s system, and likely stays there even after you move to a different provider.

It’s convenient to set up automatic payments for streaming services, gym memberships, meal delivery kits and other optional expenditures. But what if you stop using these services or aren’t getting your money’s worth? If you lose track of what you’re paying for each month, you could end up draining funds from your account for no good reason.

Automatic payments come with some undeniable advantages, but they’re not free of risk. If you decide to give them a key role in your finances, make sure you continue to check your balances and expenditures regularly, and consider setting up a series of alerts and reminders to keep yourself informed about the money that’s leaving your account.