Is Online Banking Safe?

Are Online Banks Safe?

Yes, online-only banks are typically safe because deposits are insured just as they are at traditional banks. As long as your online bank is insured by the Federal Deposit Insurance Corp. (FDIC), you'll enjoy the same protections as you would banking at a brick-and-mortar FDIC-insured bank. Online credit credit unions are insured by the National Credit Union Administration (NCUA). Online banks and credit unions are also regulated just as traditional institutions are.

A recent CardRates.com study found that 84% of Americans are worried about cybersecurity risks in online banking. But online banks and credit unions employ a number of security measures to protect your financial and personal information, including:

• Transport Layer Security (TLS) encryption: Online banks typically use TLS encryption, which encodes your information as it travels between your device and the bank's servers. Any prying eyes would have a difficult time reading the data without the proper decryption tools.
• Firewalls: Bank firewalls protect against both in-network and out-of-network cyberattacks and block unauthorized access to your computer or network.
• Threat detection and network monitoring: Online banks use advanced threat-detection tools to monitor their networks for malicious activity and stop potential attacks.
• Multifactor authentication: Most online banks and credit unions require multifactor authentication to access your account. You'll typically need two or more types of information to confirm your identity, such as a PIN or a code from your phone, or a biometric like your fingerprint or face.
• Automatic logout: When you log in, the bank creates a secure session that expires after a period of inactivity. This helps protect your account if you forget to log out or step away from your device.
• Fraud monitoring: Banks monitor accounts for unusual activity like unfamiliar logins or unexpected transfers. If something looks off, they may block the transaction or contact you to confirm it was really you.
• Device recognition: Online banks now recognize devices you use regularly, like your phone or laptop. If someone tries to log in from a device it's not familiar with, they may send you a notice for extra verification.
• Account alerts: Most banks let you set alerts for logins and account activity. These alerts help you spot suspicious activity quickly so you can act before further damage is done.

It's worth noting that none of the above security measures can fully protect an account on its own, but banks use these tools together as layers of security to help keep your account secure.

Pros and Cons of Online Banking

While online-only banks and credit unions generally offer more competitive interest rates than traditional banks, they also come with certain risks you need to consider first.

Is Online Banking Right for You?

Online banking might suit you well if you're seeking higher savings yields. You might also prefer it if you like managing your account exclusively from your phone or laptop, with phone or email support when needed.

The American Banking Association reports that roughly two-thirds of Gen Zers and millennials manage their finances using mobile banking apps. Overall, 54% of all bank customers use mobile apps and devices as their primary method of managing their bank accounts, so you might feel at ease using an online-only bank. An online bank may make sense if you rarely visit a branch, especially if you keep some cash on hand to limit the need for ATM access.

But if you prefer personalized service, you might benefit more from a traditional bank that offers in-person banking. A standard account with a large ATM network may better suit you if you need frequent, fee-free access to your cash.

Tip: You could bank with both an online-only bank and a traditional brick-and-mortar one. For example, you might open a savings account at an online bank for higher rates and a checking account at a local bank for in-person needs. You'd earn more on savings while still being able to transfer money to your local account for easy cash withdrawals or face-to-face help when you need it.

Learn more: 6 Ways to Manage Multiple Bank Accounts

How to Protect Your Information While Banking Online

As outlined above, online banks use multiple layers of security, but you still need to be vigilant about protecting your personal information. Here are some practical ways to guard your data and avoid identity and credit fraud.

• Set up multifactor authentication. Setting up multifactor authentication on your bank's site adds an extra security layer for greater protection against unauthorized access.
• Create strong and unique passwords. Choosing strong passwords that use a variety of characters, letters (both lowercase and uppercase), symbols and numbers can help keep you protected when logging in to your bank. Security experts often recommend changing your passwords regularly and never sharing them or leaving them in plain sight.
• Use a password manager. A password manager like 1Password or Bitwarden can help you protect your information with strong, unique passwords for each of your accounts.
• Avoid public Wi-Fi networks. Hackers can easily intercept your data when you're connected to a public network. If you must use public Wi-Fi at an airport or coffee shop, avoid accessing your bank account or other sensitive information until you're on a secure network.
• Watch out for phishing messages. Be cautious of phishing emails or texts that claim to be from your bank, especially if they ask you to click a link or share personal information. Instead, contact your bank directly to verify your account status.
• Set up account alerts. Log in to your account's settings area to set up alerts for transactions, low balance and security issues.

Protect your personal data and your credit

Online banks are generally safe, and many are federally insured and regulated the same way as traditional brick-and-mortar banks. That said, no bank can eliminate risk entirely, so it's wise to practice strong security habits and protect your personal information.

While you're taking steps to protect your financial data, keep a close eye on your credit reports for signs of suspicious or unauthorized activity, including accounts you don't recognize. Experian's free credit monitoring tracks changes to your credit report and sends alerts if something looks suspicious. Early detection may give you a chance to act before a small issue turns into a bigger one.