Online banks offer interest rates that leave competitors in the dust. But when you're sending your money off into cyberspace, you probably wonder: Are online banks safe?
Short answer: Yes. Online banks are some of the safest places to store your money. In many ways, they're similar to traditional brick-and-mortar banks. But it's important to follow standard web best practices when banking online.
Here's a closer look at how online banks protect your money, plus tips on how to keep money safe from hackers.
What is an online bank?
Online banks operate 100% online. They don't have any branch networks, so you manage your money from your phone or computer, occasionally stopping by an ATM when you need cash.
This model lets online banks save money on running the business. Banks pass these savings along to you in the form of higher annual percentage yields (APYs) and lower fees.
Apart from this, they're pretty much the same as traditional banks. And like traditional banks, online banks take big steps to protect your money.
How online banks protect your money
Are online banks safe? You'll be glad to learn both online and brick-and-mortar banks offer two types of protection: protection against hackers and protection against bankruptcy.
FDIC insurance
The Federal Deposit Insurance Corporation (FDIC) protects consumers against bank failure. Most online bank accounts are FDIC insured. In the unlikely event your bank goes out of business, the FDIC must recover up to $250,000 per account per bank.
Joint accounts are insured up to $250,000 per co-owner per bank. So if a married couple has a joint checking account, it would be insured for up to $500,000.
If you opt for an online credit union instead of an online bank, your money may not be FDIC insured, but it's still protected. Credit unions are covered by the National Credit Union Association (NCUA), and it offers similar insurance.
Encryption and two-factor authentication
Encryption helps protect your online banking information from hackers. Online banks use the same 256-bit advanced encryption standard (AES) that brick-and-mortar banks do. This is the same encryption the military uses to protect classified information.
But encryption doesn't protect against all hackers. Hackers can sneak into your accounts by effectively pretending to be you. Tactics include guessing weak passwords or sending you a phishing link to trick you into handing over sensitive information.
That's why many online banks now offer two-factor authentication, bonus security on top of usernames and passwords. It usually means entering a code that's texted to your phone. Enabling two-factor authentication makes it way harder for an identity thief to break into your account.
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Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.
| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.Min. to earn: $0 | New customers can earn up to a $300 bonus with qualifying direct deposits! | Open Account for SoFi Checking and Savings |
Open Account for Western Alliance Bank High-Yield Savings Premier Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.36% Rate info5.36% annual percentage yield (APY) is accurate as of 5/10/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.Min. to earn: $500 to open, $0.01 for max APY | N/A | Open Account for Western Alliance Bank High-Yield Savings Premier |
Open Account for Synchrony Bank High Yield Savings Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 4.75% Rate infoOur Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDICMin. to earn: $0 | N/A | Open Account for Synchrony Bank High Yield Savings |
Open Account for American Express® High Yield Savings Member FDIC. Rating image, 4.00 out of 5 stars. 4.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 4.25% Rate info4.25% annual percentage yield as of June 18, 2024Min. to earn: $1 | N/A | Open Account for American Express® High Yield Savings |
How to know if an online bank is legitimate
If you're thinking about opening a checking account online -- or any bank account, really -- take the following steps to ensure you're working with a legitimate institution.
1. Check out its website and customer reviews
Poke around the bank website to see if anything seems off. Look at its "About Us" page for obvious errors, like a bunch of misspellings. That's a bad sign: It suggests the site was created in a hurry.
Google the bank and look for customer reviews. If you can't find any, or most reviewers call the bank a scam, stay away.
2. Verify it's FDIC insured
Most legitimate banks have an "FDIC insured" notice at the bottom of their website. But you can do more to confirm a bank is legitimate.
Use the FDIC's BankFind tool to verify an online bank has FDIC insurance. You can search by bank name, FDIC certificate number, or web address. If you can't find anything on your bank here, steer clear.
One thing to note: If you're working with an online bank that partners with a traditional bank, the two institutions might operate under the same FDIC certificate number. If that's the case, you may have to look up the partner bank for these details.
3. Look into the security measures the online bank takes to protect your money
Most banks have a page on their website detailing how they protect their customers' money, but if you can't find anything similar, you can ask the bank directly over phone or email. Ask about two-factor authentication as well.
Double check that the bank's URL begins with "https" instead of "http." The extra "s" indicates information on the website is encrypted and won't be easily hacked.
RELATED: Pros and Cons of Online Banks
How to keep your money safe when banking online
Most banks offer digital services these days. Banks do what they can to protect your information, but you should take precautions to keep your personal information safe. Here are a few tips to help you do that on the web or mobile banking apps:
- Always type your bank's web address into your browser. Don't click on links sent to you in an email or text message. This is probably a scam. Tip: Bookmark the web page for easy access.
- Never bank on a public wifi network. Hackers gain access to your financial accounts this way. Wait until you get home and use a private, password-protected network.
- Choose a strong password and change it periodically. Your password should contain upper and lowercase letters, plus some numbers and symbols. Don't write it down. There's a chance it could get lost or stolen.
- Use two-factor authentication. Set up two-factor authentication even if your bank doesn't require it. The extra step is a little more hassle, but it's one of the best ways to keep your account from being hacked.
- Set up activity alerts. Many online banks enable you to set up account alerts for suspicious account activity. This can help you catch identity thieves quickly, before they drain your account.
The Ascent's best savings accounts
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FAQs
Verify an online bank is legitimate by investigating its website, checking out customer reviews, and verifying the bank is FDIC insured.
Online banking is very safe, but you must guard your passwords and avoid banking on public wifi networks to prevent thieves from hacking your accounts. You also need to be on the alert for phishing scams that try to trick you into revealing your account information.
No. Online banks use the same encryption and FDIC insurance that brick-and-mortar banks do to protect their customers.
Our Banking Experts
By:Kailey Hagen
Writer
Kailey Hagen has been writing about small businesses and finance for almost 10 years, with her work appearing on USA Today, CNN Money, Fox Business, and MSN Money. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.
By:Cole Tretheway
Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
Fact CheckedAshley Maready
Writer and Editor
Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.
