Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
If you’re looking to open an account at an online bank — without physical branches — you may have some concerns. First of all, will your money be secure should something happen to the bank? And perhaps the bigger question: Is online banking safe?
The short answer to both questions is yes, online banks are just as safe as traditional banks. However, when it comes to safeguarding your finances, you have a role to play, too.
Is online banking safe for my money?
There are a number of differences between online banks and brick-and-mortar banks, but in the end, each of them must follow the rules set by federal regulators like the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Office of the Comptroller of the Currency (OCC), says Robert Siciliano, security awareness expert and CEO of Safr.me, an educational resource on cybersecurity. “Online banks have to report to these regulators, otherwise they can’t be a bank,” he said.
So whether or not you walk your money into a local bricks-and-mortar bank branch or open an online savings account, your deposit accounts are protected under FDIC rules. That means if the bank goes out of business, you’re covered up to $250,000 per FDIC-insured bank, per ownership category.
But here’s the key: You want to be sure the online bank you choose is an FDIC-insured institution. Look for the FDIC logo or the words “Member FDIC” or “FDIC Insured” on the online bank’s website. You can also verify the bank’s status by using the FDIC’s Bank Find tool.
If you’re still on the fence, you can also check with your state’s department of banking or attorney general’s office to see if there have been complaints, says Adam K. Levin, cybersecurity expert and founder of CyberScout, an identity theft protection and education firm. Finally, you can always head to Google to read reviews. “People get real loud online if they think they have been scammed,” said Levin.
Is online banking safe to use?
Chances are that even if you’re using a traditional bank, you’re already doing some form of online banking, so moving to an online checking account shouldn’t add any additional risk.
“As a group, financial services have stepped up their game. They have to make sure their sites and apps are well protected,” said Levin. Plus, banking is a very heavily regulated industry since it’s a prime target. “It’s where the money is, and where the data is, so hackers are always after them,” he said. All banks shell out billions of dollars to put robust cybersecurity protocols in place.
No matter how much is invested, however, the reality is that we’re living in a shared-responsibility environment, says Levin. In other words, it’s not enough for online banking activity to be fortified on just the bank’s side.
“While there is certainly some encryption on the banks’ end, you need to do your part, too,” said Siciliano.
Tips for making online banking safe
Any time you perform banking transactions online, even if it’s just to check your account balance, you need to be careful. Start by following these best practices.
Connect responsibly: You should “never, ever conduct any financial transactions whatsoever, even on a bank app, if you’re using public Wi-Fi,” said Levin. If you’re on the go and you must log in, download a VPN (virtual private network) onto your device, which adds a layer of encryption.
Embrace two-factor authentication: Most banks have already added in a second layer to verify that it is you who is actually you logging in, even if you don’t realize it, says Siciliano. “Most people associate two-step authentication with when you are sent a text message with a one-time password,” he explained. But banks also do device recognition, in which they ask knowledge-based questions if they don’t recognize the device or browser that you’re on. If you answer correctly, it will ask if you want the bank to remember that device.
Be selective about ATMs: If you are an online bank customer without a physical branch, you need to be extra careful. “The smart move is to only use ATMs that are in banks, or attached to a bank,” said Levin, since those are more closely monitored and less likely to have skimmer devices on them. And as silly as it feels, always make sure to cover up your hand as you’re keying in your PIN code so that if there is a hidden camera, it won’t pick up what you typed in.
Protect your devices: The latest version of whatever operating system you’re using is generally the most secure version, says Siciliano. So stay on top of OS updates, as well as any app updates put out by the bank. Another tip? Keep your devices password-protected. “You may have a laptop or tablet in your home that you don’t password-protect, but what if your house is broken into? What if you take that device with you on the road?” said Siciliano.
Pump up your passwords: Good cybersecurity hygiene means having unique, complex passwords for your most critical online accounts, says Siciliano. “If you’re using the same password across multiple accounts and any one of those is compromised or hacked, now the bad guys have access to all of those accounts,” he said. Password manager software can help you keep track of it all.
Sign up for banking activity notifications: Transactional monitoring will make sure you get a text and/or email every time there is activity in your online bank account so you can spot fraud right away. “It’s one of those things that takes a minor amount of effort, but it can save a major headache,” said Levin.
Don’t fall for scams: If you ever receive what you think is communications from your online bank by email, don’t start clicking links and entering your personal identification information, says Levin. Go directly to the website or app, or call the bank hotline to confirm that they were actually trying to get in touch with you.
Is online banking safe? The bottom line
While you do have to ensure you’re accessing your online bank accounts responsibly, as long as you’re doing business with a legit online bank, your money and information are as safe as it would be at the branch down the street.