I know people who are still nervous about online banking, particularly with banks that have no major offline presence. Part of me wants them to embrace the future in which we live and get with the times. However, I understand it’s a slow and cautious process for many people, especially when there’s a level of comfortability with visiting a branch and seeing the same people you’ve known for years.
When a bank fails and liquidates it assets, it’s big news. NetBank filed for bankruptcy last month with $2.5 billion in assets and $2.3 billion in deposits (liabilities). From the reports I’ve seen since then, customers barely felt a thing. There have been some complaints, but mainly from people who held over $100,000 at the bank.
No one should have more than $100,000 at the same bank. If you need to keep that much cash around, diversify into other banks. The FDIC, the organization that insures deposits—they will cover your funds if a bank collapses—limits their protection to $100,000 per social security number per bank. If you have a joint account, you can get away with another $100,000 in that account. But for most purposes, if you need to keep more than that in accessible liquid accounts, open up an account at a new account for each $100,000 you have.
Another option is to put money in CDs with the same bank, but again, this also should be limited to $100,000. Most of the people who have not been able to access their money quickly after NetBank’s collapse had more than $100,000 deposited in the same account.
NetBank wasn’t the only bank to fail.
The year’s first bank failure came in February with Metropolitan Savings Bank of Pittsburgh, a small bank with just $15.8 million in assets. It was notable, though, because it was the first bank to go under since June 25, 2004. That was the longest streak without a bank failure since the FDIC was created in 1933.
The year’s second failure came in September when NetBank, an Internet bank based in Alpharetta, Ga., was closed by federal regulators. Depositors of the $2.5 billion-asset bank were assumed by ING Bank. NetBank had about $109 million in uninsured deposits. NetBank was the largest failure in 14 years.
The third failure occurred in early October at Miami Valley Bank of Lakeview, Ohio, an $86.7 million bank (Three bank failures spur concerns, Reuters).
I must note that two of those three banks were typical brick-and-mortar institutions. Online banks are as safe as banks with branches, as long as you see the FDIC symbol. If you still don’t trust the bank’s website, search for the bank on FDIC’s Institution Search website.
Password security is another issue, but I still believe that online security is more stringent than human behavior in person. While people trust restaurant waiters to disappear for several minutes at a time with our credit card, some are still shaky about typing the credit card number into an web form that submits information with 128-bit (very strong) encryption. When you hear of laptops with customer information disappearing or falling into the wrong hands, that has little to do with online vs. offline activity.
Bank online without fear.
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As long as you’ve double-checked for FDIC insurance and stay below the minimums discussed, you’re at risk for nothing more than an unlikely and slight inconvenience.
Still, there’s the question of “Why bother?” should you be happy at your existing brick and mortar bank. Of course, it’s for the interest rates. By keeping their offline costs so low, online-only banks can and do pass along their savings to you in the form of higher interest rates paid on your savings.
Additional return without additional risk? Usually that’s too good to be true. Not this time.
After facing layoffs in the past 6 six years it was always in my mind to make sure I have access to my money immediately. Online banking was scary – I couldn’t get my cash that day.
After careful consideration I asked myself, “When did I ever need that much money in one day?”
“When were there ever an emergency that I couldn’t wait a few days to get the cash?” I finally took the plunge and got the bug – I have three online savings accounts.
I feel really smart with my money and laugh at the terrible interest rates my bank offers. I do have some money in their money market fund for those expensive emergencies, but the rest of my money is online.
I have great faith in the FDIC. Maybe too much…though things seem to work out ok.
I’m also a child of the internet generation—and while I’m aware of web insecurity, I trust most encryption.
I remember pointing out to my mom that (back in the day) they’d actually make an impression of your credit card when you paid with it. So, sure there was risk in sending your information online…but not more than in leaving an impression of your credit card with someone offline.
We keep the bulk of our emergency fund in an online savings account but for just the instance of needing money immediately we keep $1000 in a local bank. This gives us the security of if all hell breaks loose we have an immediate safety net followed by a 2 day safety net.
I agree with “Me”. Rarely is there ever an emergency I have where I can’t wait 3 days for an online banking transfer into my regular checking account. If I really need THAT much money THAT quickly, a credit card will suffice. Therefore my emergency fund is online and I still keep some money around for ATM withdrawls at a brick and mortar bank.
”...with $2.5 million in assets and $2.3 million in deposits (liabilities). ”
I believe you mean billion, not million.
As far as on-line banking, I am also very trusting. I have our e-fund on-line with USAA and do all banking on-line.
CommRE: Absolutely… you are correct. Billion with a B.
I do all of my banking online as wel. I don’t do the brick and mortar bank. I have direct deposit for my paycheck, and all of my bills are paid online. I save at least 2 hours by doing it that way.