Online Banking is Safe

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.