Are Online Banks Safe?

Banking

Online banking has become increasingly popular in recent years, providing convenient and easy access to our financial information and transactions.

As we entrust our money and personal information to these digital platforms, it’s natural to wonder – are online banks safe?

woman using mobile phone

In this article, we’ll take a closer look at the safety measures online banks have in place and the potential risks to be aware of. We’ll also go over the steps you can take to protect yourself while using online banking services.

What is an online bank?

Online banks, also referred to as digital banks, are financial establishments that primarily operate via the internet. They offer the same services as conventional brick-and-mortar banks, such as checking and savings accounts, credit cards, and loans.

With digital banks, you have the convenience of managing your finances from the comfort of your home or while on the move, through your computer or mobile device. Furthermore, online banks typically have reduced operating costs in comparison to traditional banks, resulting in better interest rates for savings accounts and lower fees for clients.

How safe are online banks?

Online banks have implemented various security measures to protect their customers’ money and personal information. Some of these measures include:

  • Insurance protection: Most online banks offer insurance coverage to protect their customers from financial loss due to theft or fraud. The Federal Deposit Insurance Corporation (FDIC) insures deposit accounts, including savings and checking accounts, up to $250,000 per depositor.
  • Data encryption: Digital banks use encryption to secure sensitive information transmitted over the internet, converting the data into a code that can only be deciphered by authorized parties, making it more challenging for hackers to access.
  • Multi-layered authentication: Online banks utilize multiple security measures, such as a password, a one-time code sent to a registered mobile number, or a fingerprint, to confirm the user’s identity.
  • Fraud detection and elimination: Online banks use advanced software to detect and prevent fraudulent activity, including monitoring for unusual account activity such as large or irregular transactions, and flagging them for review.

What are the potential risks of online banking?

When banking online, you need to be mindful of potential threats to your finances and personal data, such as:

  • Phishing scams and identity theft – Fraudsters may try to obtain your personal details or login credentials through fake emails, texts, or calls posing as your bank.
  • Insecure personal devices and networks – Using an unsecured device or network to access your online banking leaves you susceptible to hacking and cyber-attacks. Always use a secure internet connection and a strong password.
  • Malware and hacking – Hackers can utilize malware to access your personal information and steal your money.
  • Social engineering tactics – Scammers may employ social engineering tactics to deceive you into revealing your personal information or login credentials.

Stay alert and aware of these risks. Implement security best practices and exercise caution with suspicious emails or calls to protect yourself. If you suspect fraud or identity theft, immediately contact your bank or credit union.

Pros and Cons of Online Banks

Pros

  • Convenience: You can access your accounts and complete transactions from anywhere with an internet connection, at any time.
  • Lower fees: Online banks often have lower overhead costs than traditional banks, which can translate into lower fees for customers. Many online banks offer virtually no fees.
  • Higher interest rates: Online banks may offer higher interest rates on savings accounts than traditional banks.
  • Online budgeting tools: Some online banks offer online budgeting and financial management tools. This can help you keep track of your expenses and plan for your financial future.

Cons

  • Limited customer support: Online banks may have limited customer service options, such as no physical branches or restricted operating hours.
  • Cash access constraints: Some online banks may not have ATMs or may impose fees for cash withdrawals. However, many have a large network of fee-free ATMs available.
  • Limited check access: Some online banks may not offer checkbooks or may charge fees for check orders.
  • Reliance on technology: Online banking requires a stable internet connection, which could pose a problem during power outages or technical glitches.

When deciding on using an online bank, weigh the pros and cons. While online banks can be a convenient and economical choice, they may not suit everyone. Do your research, compare different banks, and take into account your personal financial needs before making a decision.

Is an online bank right for you?

There are many factors to consider when deciding whether an online bank is the right choice for you. One major advantage of online banking is the convenience it offers.

You can access your account 24/7, view transactions, pay bills, transfer funds, and even deposit checks all from your computer or mobile device. This can save you time and effort compared to making a special trip to a brick and mortar bank and waiting in line during business hours.

Another benefit of online banking is the potential for better interest rates. Online banks often have lower overhead costs than traditional banks, which means they can offer higher interest rates on savings and other accounts. This can help you grow your money faster over time.

However, there are also some potential drawbacks to consider. An online bank account may not have all the features of a traditional bank account, such as check writing, cash deposits, and in-person customer support.

Additionally, online banking may not be as secure as traditional banking, as there is a risk of fraud and identity theft. It’s important to make sure you choose a reputable online bank and take steps to protect your personal information.

Ultimately, the choice between an online bank and a traditional bank is a personal one. Consider your financial needs and habits, as well as your comfort level with technology, when making this decision.

If you value convenience and higher interest rates, an online bank may be a good fit for you. But if you prefer face-to-face interaction and a wide range of services, a traditional bank may be a better choice.

What are the best online banks?

Deciding on the right online bank can be a challenge with so many options available. Each bank boasts unique attributes like no fees, free ATM withdrawals, and high APYs on savings. To simplify the process, let’s examine some top online banks to make it easier for you to compare and choose the one that suits you best.

1. Chime

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  • No minimum deposit
  • No minimum balance and no monthly maintenance fee
  • Over 60,000 fee-free1 ATMs
  • Get paid up to 2 days early with direct deposits2

You can open a Chime Checking Account in less than two minutes. This free checking account is available to U.S. citizens ages 18 and up.

With the Chime® app, you’ll be able to manage your banking and can sign up for this Checking Account (and a Chime Savings Account if you’d like).

Your Checking Account will come with a free Visa debit card. You can even set up direct deposits to further streamline your banking.

2. Current

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  • No minimum opening deposit or maintenance fees
  • Get paid up to 2 days faster
  • Overdraft up to $200 without any overdraft fees
  • Earn 4.00% APY on your savings
  • 40,000 fee-free ATMs

Current is one of the fastest-growing mobile banking solutions in the U.S., with over one million members. However, Current is a financial technology company, not a bank. Current does not use ChexSystems or pull your credit report.

Some features of this free checking account from Current include fee-free overdraft protection of up to $200, 40,000 fee-free Allpoint ATMs, and no minimum balance requirements or hidden fees.

You can also get paid up to two days early with direct deposit and earn up to 15x points, and get cashback. With Current Pay, you can transfer money instantly to other Current account holders. 

3. Axos Bank

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  • No minimum deposit
  • No monthly maintenance fees
  • No overdraft or non-sufficient funds fees
  • Unlimited ATM reimbursements
  • Early direct deposit up to 2 days ahead of payday
  • Free checks and Visa debit card

Axos Bank is an FDIC-insured bank that’s been in business for 20 years. NerdWallet recognized Axos as offering the best checking account, and Go Banking Rates awarded Axos the title of the Best Online Bank.

With the Rewards Checking account, you’ll be able to bank entirely online. Axos’ innovative banking platform integrates with apps like Mint and Venmo and allows you to aggregate multiple accounts into a single, simplified view.

4. Ally Bank

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  • No opening deposit
  • No monthly maintenance fees
  • 0.10% APY on less than $15,000 minimum daily balance, and 0.25% APY on $15,000 minimum daily balance
  • Ally eCheck Deposit allows for check deposits from your smartphone
  • Free use of 43,000 Allpoint ATMs and up to $10 reimbursement for other ATM fees per cycle

Ally’s Interest Checking Account is a free online checking account that offers some of the highest interest rates in the industry.

Balances of less than $15,000 are eligible for 0.10% annual percentage yield (APY), while balances of $15,000 and up are eligible for a 0.25% APY. With no minimum deposit and no monthly maintenance fee, it’s easy to open a bank account online.

Ally is very transparent about its fees. However, be aware that Ally does have an excessive transaction fee. This fee goes into effect if you exceed six transactions with money market accounts (like online and mobile banking transfers) per statement cycle.

5. SoFi

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  • No minimum balance fees
  • No monthly fees
  • 2.00% APY on account balance
  • No-fee overdraft coverage
  • 55,000 fee-free ATMs

The SoFi Checking and Savings account has no account fees. Plus, it offers free access to 55,000+ ATMs within the Allpoint® Network.

You can get your paycheck up to 2 days early when you set up direct deposit. You can also earn up to 15% cash back at local establishments when you pay with your SoFi debit card.

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