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Are Online Banks Safe?

This article was written by in Banking. 16 comments.

Anyone who is accustomed to being able to walk into the local bank branch, access accounts through a teller, and discuss banking options with an account manager on-site might still have reservations about moving money to an online-only bank. The benefits are big. Usually, online-only banks offer higher interest rates on savings and certificate of deposit accounts, and that makes the change worthwhile for most customers.

It’s common to hesitate. A bank with no physical branches seems more ethereal, as if it’s not a thing, but an idea of a thing. Does a bank you can’t visit exist in the real world? Are the customers identified by hacker-like handles and does the bank operate in a fictional world like Second Life? Will the company just disappear one day, taking advantage of the fact that closing down wouldn’t entail shuttering storefronts? Many customers simply have serious doubts about the legitimacy of a company that can’t be found by driving any number of miles.

Banking Deal: Earn 1.30% APY on an FDIC-insured savings account at Synchrony Bank.

Today, Jesus T. wrote into Consumerism Commentary with his concern:

I would really like to transfer my savings from Chase Bank to Ally Bank. At Chase I am not earning any interest. I’m just very wary because Ally is an online bank only. I don’t want to lose the money I have worked so hard to save. I was thining of opening a CD account with Ally. Any suggestions to put my mind at ease about to Ally Bank?

Online banks, as long as you’re dealing with a reputable institution, are just as safe as traditional brick-and-mortar banks. Here are some points about Ally Bank and online banking in general that could help put your mind at ease.

  • Ally is currently one of the strongest online banks right now. The announcement may have been more of a marketing move than anything else, but Ally is a potential buyer for ING Direct. For more on this bank, see my Ally Bank review.
  • Your deposits at Ally Bank, just like deposits at any other legitimate bank in the United States, are protected by FDIC insurance. Even if the bank does have a problem in the future and is acquired or goes out of business, you will be able to access your money. The likelihood of this happening is low. If you’re ever unsure about whether a bank is covered by FDIC, search for them on Bank Find, the FDIC’s database interface.
  • Online banks without local branches have lower overhead costs, so they are able to pass the savings onto the customer in the form of higher interest rates.
  • Banks that sprung up operating online only were so successful with customers that brick-and-mortar banks copied the business plan. For example, Emigrant Bank, a tiny bank in New York, gathered a wider audience when the company created Emigrant Direct and was a head-to-head competitor with ING Direct for several years.
  • Banking online with a legitimate institution is secure. Your information is encrypted when it is sent to and from a bank.

Every time you get in your car and drive to the bank, in some respect, you are putting your life at risk. When banking online, all you have to worry about is lightning.

Updated September 24, 2015 and originally published May 18, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar 1 cubiclegeoff

Some people also seem to think that not accessing your accounts online is safer because they’re totally safe from hackers. But if you are using any major bank or a bank that’s connected to the internet, then your account information is already there on their network. Not accessing it online doesn’t keep it outside of their networked system.

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avatar 2 lynn

I can see the proable end of the road with this online concept. The picture isn’t too pretyy.

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avatar 3 Luke Landes

What do you mean? Online banking is the way forward.

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avatar 4 lynn

Many things appear to be the way forward. In my opinion the way forward gives others easier access to my resources. I am not so quick to give others control over what we worked hard for. Our vehicles were (I’m retired) always conservative. Because of this attitude, when I retired, just when everything began to decline, I didn’t loose anything. I am a risk adverse personality.

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avatar 5 shellye

I stay out of banks as much as possible, and have instructed my own kids to do the same. And as Geoff commented, any account at a bank that’s connected to the internet is at risk of hackers. At least if you bank online, your physical well-being isn’t in jeopardy.

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avatar 6 Donna Freedman

A relative of mine was saying she wished she could get a better interest rate than the 0.25% she’s getting on savings. I suggested an online bank. She won’t even consider it because she doesn’t trust the notion of money being sent around online. I told her that even regular banking is pretty virtual these days.
Then again, she doesn’t have a computer and doesn’t want one. She and her spouse seem proud, somehow, that they don’t use the Internet.
Unless, of course, they want to order a CD from some obscure musical group, or buy an airline ticket. Then they get me to do it for them.

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avatar 7 tbork84

I love the caveat at the end. Its become much more burdensome to not use the Internet for many things. I guess as long as they don’t feel its an issue to get you to do those things for them. Money and savings are a different breed though because I can certainly imagine relatives who would rather not have members of the family know their account balances.

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avatar 8 skylog

this just makes me shake my head. i understand there is a generational issue here, but still, it almost bothers me. more so that they ask for your help when it benefits them. i do not pretend to know what the future will hold, but it will be interesting when this “old guard” is gone and the youngest generation is in “power.”

one of the most irritating issues for me right now is the whole freedom of the internet issue. there are members of congress who have never even used a computer writing and trying to pass laws that will determine the future of the internet. how can this be? sigh.

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avatar 9 Anonymous

I still like doing business with a brick and morter bank! It supposedly helps to get to know your banker in person when you go in for a loan…not sure that is really true, but it might help – all other things being equal.

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avatar 10 Sarah

I love using online banks. My mom, however, would probably never use them. I’ve mentioned them, and she’s worried if her computer ever broke down, she’d be stuck without access to her money.

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avatar 11 Anonymous

My Pc Went Out It Was 10 Years Old Went Out And Got A New HP Laptop Need It For Banking Get On Line Banks Phone Numbers Good Luck

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avatar 12 Ceecee

Have used ING for years….no problems. I am also thinking of opening an account with Ally, and I wouldn’t hesitate. The brick and mortar banks use computers too. As to the comment by nimrodel about access, most online accounts are also accessible by telephone.

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avatar 13 Donna Freedman

I use a brick-and-mortar bank, too — keep a certain amount of liquid cash and a checking account. But I’ve been using online banking for the majority of my savings for several years now. Wish the interest rate were what it was when I started, though.

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avatar 14 Cejay

I have a small saving account online but a regular bank. I have been thinking about changing to mostly online only. I never pull out more than $100.00 a week from the ATM and usually not that much. Our company will separate ou checks into separate accounts so maybe I will send the majority to an online account and a little to my credit union.

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avatar 15 TakeitEZ

I recently switched to online banking for my finances and I am very happy with the move. I am banking with FlagstarDirect. They just added a new feature to their online banking which is designed by quicken. It is pretty much having Mint tracking software in your bank account and allows you to track your spending not only from your account from Flagstar but any other financial account.

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avatar 16 skylog

i have had ING since 2004 and have had zero issues. in fact, i have had more account issues with my brick and mortar, albeit it was only one issue. this is similar to the shopping online/buying in store debate that still goes on for some reason.

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