In 2001, 20 percent of U.S. households performed banking transactions online, up from 15 percent the year before. By 2006, according to estimates by Jupiter Media Metrix, half of all banking households will bank online.

To do your banking on the Internet, you'll need a computer, a modem, Web access, and in a few cases, bank-specific software. Most banks that offer online banking and electronic bill-payment do so for free. Even if they do, some banks will charge you extra -- around $8.95 a month -- if you use personal finance software such as Quicken or Microsoft Money instead of the bank's Web site to conduct transactions.

If you pay your bills online, you will save on postage, which can add up to between $48 and $96 a year, if you write 12 to 24 checks a month. If your bank doesn't offer electronic bill payment for free, those savings may be negated, since electronic bill-paying fees usually run between $5 and $8 a month ($60 to $96 a year). Some banks that charge, however, only charge a per-transaction fee, or a fee after the user exceeds a certain number of payments. Any fees you're charged will be in addition to your regular account fees, not in place of them.

To pay bills online, you create an address book of payment recipients. When you get a bill, you select a payment amount, the date it should be sent and the recipient. The bank takes care of the rest. Most bill-paying programs let you schedule recurring payments if the amount you pay to a given recipient is the same every billing period.

If your bank doesn't provide electronic bill payment, others do, including brokerages like Charles Schwab, Internet portals such as Yahoo and AOL (parent of CNN/Money.com), and even the U.S. Postal Service. Typically, these are free services. But they do add a third-party middleman to your banking transactions.

You can also use online banking to reduce the stacks of bills on your desk if you don't mind using the Web to view your billing statements. "Consolidated bill presentment," as it's known, lets you view all of the bills you pay electronically on your bank's Web site. You're alerted by e-mail when bills arrive, then you can check them online and instruct your bank to pay them. If you use a consolidated bill presentment service, you'll typically pay a monthly fee of $4 to $8.

The best bank Web sites go beyond bill payment and balance updates to let you check your credit card accounts, look at both your banking and brokerage accounts, make trades and get free stock quotes. Banks with online services commonly use the most secure data encryption available and offer consumer protection against liability for losses due to fraud, according to the Tower Group, a consulting firm that examines the impact of technology in the financial services industry.

If you think you'll do all your banking online and want to get better rates than those offered at the brick-and-mortar bank around the corner, you might be considering an Internet bank. During the economic boom of the 1990s, Internet banks were able to offer higher yields on accounts and lower rates on loans than traditional banks. Since then, however, many Internet banks have closed due to a weakened economy and the difficulty they faced acquiring customers for loans, which are the mainstay of bank revenue. What's more, the number of traditional banks offering online banking is on the rise, creating a tougher competitive market.

Still, rates at Internet banks still beat the competition and their account fees are somewhat lower. But in exchange you forfeit some of the conveniences of a brick-and-mortar bank. Any transactions normally requiring a teller, for instance, may be a more protracted affair online. And an Internet bank doesn't have its own ATMs, so you will pay surcharges every time you use one, although you may be offered some reimbursement for these fees by your online bank.