You’ve probably heard about the latest banking trend. Online banking is top of mind when earning high interest rates on your savings, checking, and money market accounts. They sound too good to be true.
But you want more from a bank than high interest rates; you want safety. With identity theft and hacking prevalent, anything online could be deemed as vulnerable. Does that include your money? Are online banks a safe place to keep your money?
Online Banks Covered by FDIC
The Federal Deposit Insurance Corporation (FDIC) is an independent agency that protects deposits in the event of a bank failure.The FDIC insures up to $250,000 for each account ownership category. The FDIC protects various types of accounts, including:
- checking accounts
- savings accounts
- money market deposit accounts
- certificates of deposit
Your money is as safe in an online bank as it is in a traditional bank that has branches.
Breaches in Banking
All banks have their security problems. In 2018, 17 percent of financial breaches took place in banks. This increased to 47 percent in 2023. Online banking experienced less than 0.5 percent.Hackers target banks with large datasets. Financial data is one of the most valuable pieces of data to steal.
These breaches tend to take place in traditional banks, which have branches and numerous employees. Online banks don’t have brick-and-mortar branches, which means fewer employees.
Related Stories
3/18/2024
A Verizon study found that 74 percent of data breaches happened as a result of human error. Some human errors were caused by employees mishandling vital data and others were caused by customers.
But how do online banks guard against these breaches?
1) Data Encryption Used
Under federal guidance, both online and traditional banks use online encryption. Data encryption is a method of protecting data by converting it to a secret code. It can only be unlocked by a password or unique key.Data encryption prevents outsiders from reading your data. This includes card numbers and other personal information.
2) Sign-out Is Automatic
Most online banks use automatic sign-out or time-out. If you don’t log out, your bank will automatically log you out after a certain amount of time.Automatic logout prevents people from accessing your account on your device without having to log in.
3) Multi-Factor Authentication
Many people think this is an inconvenient way to access their account, but multi-factor authentication adds an extra layer of protection.Rather, just requiring your password, a bank may have you answer a security question or type a number texted to your cell phone. Sometimes they send the number to your email.
4) Online Banks Monitor Fraud
Have you ever had your bank contact you about suspicious activity? Online banks, as well as most traditional banks, monitor your accounts.Because they monitor your account’s activity, you’re safe. You won’t be held liable for unauthorized transactions.
Downside to Online Banking
Online banking is a safe place to keep your money. Most of them pay higher interest rates than traditional bank so your funds are not only safely saved, but earning more money.However, there are some downsides to online banking.
1) Lack of Customer Service
You have fewer employees, and although that creates a safer environment for your funds, it does limit customer service.You won’t have the face-to-face interactions that you do in a branch.
But with the consolidation of brick-and-mortar community banks with national banks, interaction has decreased. Much of your servicing is done over the phone anyway.
2) Online Bank Going Offline
Websites aren’t perfect. But if an online bank’s website temporarily goes down, you won’t have access to your funds.But most problems are fixed quickly. Even so, you may want to keep some emergency money in hand.
3) Hackers Stealing Money
It’s imperative that you choose a bank with tight controls. This goes for both online and traditional banks.Hackers are out there, and they want to steal your money. But if you report it within 60 days, a bank will make it right.
4) Identity Theft
Identity theft goes hand in hand with hackers stealing money. You have a lot of personal information stored in your bank. The best way to protect it is to guard your password and change it periodically.Online Banks as Safe as Traditional Banks
In this day and age, online is the predominant way people bank with their traditional bank. Think about it: When did you last go into a branch?If you need cash, you go to an ATM. And when you want to transfer money, you go online.
All legitimate banks are FDIC-insured, so your money is safe up to $250,000.
What’s the difference between using an online bank and banking online with a brick-and-mortar bank?
The main difference is the higher interest rate you’ll earn at online banks.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
