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Making Sure an Online Bank is Legit

A few of my friends have been hesitant to sign up for online bank deals like at HSBC, ING Direct, or VirtualBank. I have to admit that the name VirtualBank doesn't help matters any. It doesn't give an impression of an established financial institution.

So how can someone ensure that an internet bank is legitimate and that your money won't become virtual money? The most important thing is to make sure the bank is FDIC insured. Next, make sure the website is the official website of the bank. Both of these can be verified at FDIC's bank-find tool.

Confirming that a Bank is FDIC Insured

Let's use VirtualBank as an example. Before searching for a bank at the FDIC, be sure you get their official name. In the case of VirtualBank, you need a little more information about the bank before you can find it on the FDIC. This information is typically available in the bank's "About Us" page. In this section you can find out the online bank's parent company. In VirtualBank's case, it's Lydian Bank and Trust Company.

With the bank's official name, you can now search the FDIC database. The bank is often listed in the FDIC database with a name that's slightly different than what is on the bank's website. This is the case for VirtualBank. So in the search box, just use the main name such as "Lydian". Using Lydian gives an exact match with the following information:

Lydian Private Bank (FDIC Cert: 35356)

is a Savings Association and has been FDIC insured since April 6, 2000.
It was established on April 6, 2000.
Its main office (headquarters) is located at:
180 Royal Palm Way
Palm Beach, Florida 33480
County of Palm Beach

Lydian Private Bank has 2 Domestic Branches (Offices) located in 1 state(s)
and 0 Foreign Offices. (Check to locate Branches (Offices) by state.)

Lydian Private Bank's website.

This confirms the information at VirtualBank's website. The FDIC page also gives the web address for the bank. This allows you to confirm that the URL is in fact part of Lydian Private Bank which is FDIC insured. Another useful piece of information is how long the bank has been FDIC insured.

How Much Safety Does FDIC Insurance Give You?

Even if an online bank like VirtualBank is FDIC insured, does that mean my money is safe with them? According to the FDIC, as long as your deposits are under the insurance limit, you should be safe. Furthermore, consider that:
  • No depositor has lost a single cent of FDIC-insured funds as a result of a failure
  • The FDIC's deposit insurance guarantee is rock solid
  • The FDIC pays depositors promptly after the failure of an insured bank.
See this FDIC page and this FDIC brochure for further information.

Also, it's important to know that your FDIC insurance limit can be extended beyond $100K per bank (changed to $250K as of October 2008). You can extend this limit by having multiple ownership categories. This FDIC brochure has all the details.

Hopefully, you can use this post to help convince your friends and family about the legitimacy of online banks like VirtualBank. Then they can feel comfortable about signing up, and will be glad with the benefits of high interest rates and sign-up bonuses.

If this has helped convince you, and you want to sign up with an online bank, check out these posts for sign-up bonus information:

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