Are Online Banks Safe?

Online banking is a reality for everybody. Even traditional banks with branches offer account access online. But are online banks safe? Here are several tips to help keep your money secure online.

This article was first published several years ago. At that time, most individuals were still doing their banking transactions in person or over the phone. Today, online banking and online banks (those without physical branches) are ubiquitous.

It’s difficult to find a bank that doesn’t at least allow for online banking. Sure, maybe you don’t have to do all your transactions online. However, chances are that you can do at least some transactions in and online format–if not even through a mobile app.

And the benefits are big. In a low interest rate environment, online banks are able to offer higher interest rates for their customers. They don’t, after all, have a huge infrastructure of employees and brick-and-mortar buildings to maintain.

But with more and more news stories of major hacks and breaches of online information, the question still remains: is online banking safe?

Let’s explore this question here.

Is It Safe to Move Money Online?

We’ll explore the question of actual online banks second. For now, let’s look at this separate question. Is it safe to do financial transactions of any sort online?

The answer to this question is generally, yes. Banks have the highest levels of security online, since they’re an obvious target for hacking. In short, it’s as safe to bank online, generally, as it is to do anything else.

But that doesn’t mean you should be silly about how you choose to conduct online business with a bank. Take these steps to keep yourself safe when banking online:

• Choose a good password. Ideally, this is a password that includes letters, numbers, and special characters. And it should be long enough that it’s difficult to guess.
• Don’t use a public computer or public wi-fi. You might be tempted to head to your local coffee shop to balance your budget. But that’s not a great idea. Accessing your banking information from a public computer or wi-fi connection gives hackers potentially easier access to your information.
• Be smart about emails. If you get an unsolicited email or text from your bank that says your account has been locked or you need to log into the site, ignore it. It’s most likely a phishing attempt to get your password information. You should only receive emails like this if you are the one asking to reset your password. If your concerned, contact your bank directly. Do not click any links in the email.
• Stay on top of your accounts. You may not balance your checkbook with a physical register any more. But log in frequently to check past transactions and ensure you know where your money is going.
• Keep your computer up-to-date. Take the time to run anti-virus scans on your computer, and update these scanners when prompted. Many of the updates pushed out to your computer are to fight against hackers and keep your system secure. So accept these updates to ensure you stay secure.

If you take these steps, your money is safe online, and you can conduct banking transactions online.

What About Online-Only Banks?

So what about banks that are exclusively online? You may still feel uncomfortable banking when you don’t have a brick-and-mortar place to visit.

I understand this feeling. There’s something comforting about walking into a physical bank branch. Perhaps it’s seeing the large, steel vault, a security guard, and employees that makes us feel safe.

The reality, however, is that online banks are just as secure as those banks with branches. In fact, many online banks are now household names. You’ve probably heard of Ally Bank, American Express Bank, Discover Bank, and Capital One 360.

Furthermore, online banks are FDIC-insured just like traditional banks. Of course, you should make sure your online bank is FDIC-insured. This insures your money up to $250,000 if the bank goes out of business. You should, in fact, make sure that any bank, not just the online-only kind, is FDIC-insured before you decide to deposit there.

The bottom line here is the online-only banks are just as safe in cyberspace as brick-and-mortar banks with online account management tools. You’d be hard-pressed these days to find a bank that doesn’t allow for at least some account management and access online.

Just be smart about your personal practices with online banking and choose an FDIC-insured bank with good encryption. Then, you can take advantage of online-only banks’ often superior interest rates and account offerings.

Getting Help From an Online Bank

Most if not all online only banks have live customer service representatives, so you can still talk with a real person about your banking needs. Check out bank reviews before choosing a bank to ensure that this is the case with your online bank.

In this digital age, I tend to communicate with my online banks for email. I find it more convenient than a phone call. But there are representatives to talk with if need be. Ironically, I rarely go into the banks I use that do have branches. I speak with them via phone or email as well.

My Experience with Online Banks

I’ve banked with several online banks. Currently, we use CIT Bank, Ally, and Capital One 360. We turned to online banks for their higher savings account and CD rates and low fees.

Over time, we’ve transferred hundreds of thousands of dollars online. These transfers are typically between our brick-and-mortar bank and the online bank. It’s extremely easy to do and we’ve never had an issue.