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Updated on Thursday, January 31, 2019
You may have noticed by now that any search for the best savings accounts will generally point you in the direction of an online bank. This is because online banks consistently offer some of the best rates on deposit accounts. But perhaps you’ve also wondered about the many new bank names that have surfaced. When you choose a new bank, you want to be comfortable with your choice, and going with a new online bank may seem like a dubious decision.Without the reputation of a big-name bank, it’s natural to have some doubts about an online bank’s security. According to a study from Kaspersky Lab and B2B International, 59% of those surveyed indicated concerns of online banking fraud. Even more respondents (69%) feared for the safety of their personal data, including banking credentials. When you’re trusting a bank with your deposits, having these doubts are fair game. But in fact, online banks can be just as safe, if not safer, than the bank down the street.
What is an online bank?
Online banks, also known as internet-only banks or virtual banks, are banks without physical branches. You can only access your accounts online, which also often includes mobile banking capabilities whether through a mobile app or a mobile-optimized website. While the lack of physical location limits your in-person access to a bank representative, it doesn’t mean you can’t manage your money effectively. Online banking allows you to check on your account balances, pay bills and make transfers. Furthermore, most mobile banking apps allow you to deposit checks on-the-go by snapping a photo with your smartphone’s camera.
Are online banks safe?
So long as they carry FDIC coverage, your funds are just as safe with an online bank as they are with a big brick-and-mortar bank down the block. The Federal Deposit Insurance Corporation is the entity that insures your deposits up to $250,000, should your bank go under. You can check whether a bank is FDIC-insured on each bank’s website. You can also use the FDIC’s own BankFind tool to verify a bank’s coverage.
Most online banks take the same precautions as the big banks to protect you and your money when using their online banking features. (It’s important you check any bank’s security measures before trusting them with your money, whether they’re based online or not). You might already be using your local bank’s online banking features, just like 51% of U.S. adults who bank online. Switching to an online bank would primarily be different in the lack of branch access.
Online banking protection includes network and browser encryption, firewalls, and anti-virus and anti-malware protection. Many banks will also implement two-step authentication when needed, automatic logout, account monitoring and regular fraud reviews. Ally Bank, a consistent online bank competitor, also offers free access to Webroot® SecureAnywhere™ anti-virus software to its customers. This software blocks phishing and spyware, identifies unsafe links and automatically updates to stop the latest threats.
Placing your money under these technological protections can even be safer than continuing to bank with paper. Paper statements and checks are often targets of dumpster-diving thieves who can then take that information to make fraudulent purchases, whereas encrypted transactions require a bit more tech-heavy lifting.
How to bank online safely
Keeping your money safe in a bank also depends on you. The bank can’t do much to protect you if you willingly give out your account information. Of course, your banking information can also be stolen unwillingly if you’re banking online over an unsafe network or even by someone looking over your shoulder.
- If you have to access your accounts in public, make sure you’re doing so as securely as possible.
- It helps to install anti-virus software and other protections on your own computer.
- Be wary of emails that might look like they’re from your bank, but ask for personal or account information. Your bank already has that information, so there’s no need for them to ask over email. If your bank does need to contact you, it will generally use its own secure message center within your account portal.
- Keep your bank’s mobile app updated with the latest version. App developers constantly push out app updates when they discover security gaps and need to provide patches. So be sure to install those updates or set your phone to automatically install new updates.
- Sign up for two-factor authentication or add fingerprint or face ID sign-on capabilities to your bank’s mobile app to make it harder for anyone to impersonate you.
Act quickly if you’ve fallen victim to fraud
If your personal information or debit card is stolen, you still have a responsibility to inform your bank as soon as possible. Reporting a lost card within two days can still make you responsible for up to $50 in unauthorized charges. Wait any longer and you could have to pay back up to $500 in unauthorized charges. If you notice any unauthorized charges made to your account, you have 60 days to notify your bank to avoid liability.
So, should I bank online?
If getting the highest deposit rates is your goal, then you should look into getting an account with an online bank. The biggest adjustment you’ll likely make is getting used to the lack of physical branches. But you won’t have to worry about online banks being any more unsafe than a traditional brick-and-mortar bank.