Online banks are convenient -- but are they safe? The answer may surprise you.Image source: Getty Images.
Online banks are gaining popularity, particularly with young folks. We’re seeing more and more new financial start-ups with no physical locations, and even traditional brick-and-mortar institutions are creating their own online-only arms.
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This change in the face of banking has left some people with lingering concerns. Are these new online banks safe?
Banking leaves brick-and-mortar behind
Their quick rise to popularity isn’t surprising. In a lot of ways, these online-only banks offer some of the most competitive products in consumer finance. Many of the best low-fee checking accounts, best high-yield savings accounts, and even the best brokerage accounts are now offered by online banks. Because they don’t have the overhead costs of operating physical locations, they can offer accounts with lower fees and higher returns. They also tend to prefer transparency, using well-designed websites and tech-based mobile apps to help customers track and manage their spending more efficiently.
Giving up access to physical branch locations might scare some people, but for younger consumers who do almost everything online, there isn’t as much hesitancy about handling their finances online. In fact, being able to complete all of their banking activities from the comfort of their smartphone is often ideal.
What you should know about online banks and your security
Saving money on fees, making greater returns on interest, and being able to do it all from the comfort of your own home sounds great, but there’s still one major concern with online banks: security.
From Target to Equifax, data breaches are now commonplace, and it’s no wonder consumers are concerned about putting their information online. Many people worry that letting online banks handle their financial information is riskier than dealing with traditional banks.
However, you should know that well-established online banks are just as secure as traditional banks. They’re FDIC-insured as well, and they follow the same regulatory laws as any other bank. Not only are they required to put numerous security measures in place to protect your information, but they’re also required to limit your liability as a consumer in cases of fraud.
It’s also worth noting that even if you complete financial transactions with your bank in person, your information is still stored online in the same way that it is with online banks. In the end, there isn’t a big difference between dealing with your finances online and in-person when it comes to account security. The best way to make sure your financial information is secure is to take the proper security measures yourself.
How to keep your financial information safe
The best online banks are just as secure as any traditional bank. That doesn’t mean you shouldn’t take certain precautions to ensure that your financial information is safe. Here are some things you can do to be proactive about your security.
Avoid banking on public Wi-Fi networks
If you’ve ever logged into a public Wi-Fi network and received a pop-up on your computer warning you that you’re using a public or unsecured network, there’s a reason for that warning. Public Wi-Fi networks are used by countless of strangers each day.
While simply connecting to the same network as you won’t give them access to your personal information, technologically savvy identity thieves have ways of accessing any information you’ve sent across a public network. In fact, you don’t even have to log into your bank account to be at risk, as your mobile apps might be running in the background while you use public Wi-Fi. In order to best protect your data, take the following precautions as well.
Set up two-factor authentication
This is one of the best ways to protect your information, and more banks are requiring two-factor authentication now to log on. This means there are two steps to your login process. They can be a password and a photo, a password and a text confirmation, or a password and a fingerprint. The more walls you put up between the user and your information, the harder it will be for other people to break through.
Watch out for phishy emails
Phishing emails are emails sent by hackers that resemble an email you’d receive from your bank, your work, or perhaps an online store you shop at frequently. They trick you into logging into or giving up information about one of your accounts, but the login is false and set up by the hacker in order to capture your information. Never contact your bank by responding to an email you’ve received. Instead, always look up their contact information and reach out to them directly.
Update your password regularly
Most hackers are able to access your information by first getting a password to one of your accounts. From there, they’re able to find loads of additional information about you. Make sure to update your email and bank account passwords regularly -- ideally, every month -- and avoid simple passwords that are easier to guess, such as your birthday or name. The best passwords are random and include both lower and upper case letters as well as numbers and symbols.
Ultimately, the decision between online and traditional banks shouldn’t be made based on security concerns, as they’re very similar. Instead, being proactive and taking the proper precautions offers the best way to protect your information.