Are Online Banks Safe? (2024)

If they’re FDIC-insured, online banks are as safe as traditional brick-and-mortar banks in many ways. You can also take steps as a consumer to ensure your account is as protected as possible when banking online, whether you bank with a brick-and-mortar or an online bank, also called a direct or digital bank.

  • Online banks may offer more attractive fee schedules and interest rates. Services are similar to traditional banks, other than physical branches.
  • Online banks take various precautions to keep your money safe, including FDIC insurance, data encryption, multi-factor authentication, and more.
  • Determine whether a bank is legitimate using the FDIC’s database.
  • Check for complaints with the CFPB, reading online reviews, and researching the bank’s security features.
  • Keep your bank account safe by password-protecting your devices, avoiding banking on public wifi, and keeping your app and device software up to date.

What Is an Online Bank and How Does It Work?

An online bank operates entirely online. Unlike traditional banks, online ones don’t have physical branches that you can visit. Instead, you do all of your banking from a website or mobile app. Around one-third of consumers use a digital-only bank, according to J.D. Power, a company analyzing consumer behavior.

Online banks offer many traditional bank services, including checking accounts, savings accounts, and ATM access. And because of the lack of overhead from brick-and-mortar buildings, they can offer benefits such as lower fees and better interest rates. Many banks in our best CDs, best high-yield savings accounts, and best money market accounts lists are online banks.

On the other hand, online banks lack some traditional banking services that can improve your sense of security:

  • You can’t visit a local branch for a face-to-face conversation with a bank employee.
  • No access to safety deposit boxes for record and valuable safekeeping.
  • No services like cash deposits, money orders, notarization, and more.

Note

Because many people with traditional bank accounts do their day-to-day banking online, you may not notice a stark difference between using an online bank and a traditional bank.

The 6 Best Online Banks for May 2024

What Measures Do Online Banks Take to Protect Your Money?

Like traditional banks, online banks take various security measures to protect your money. The steps they take to secure your account are standard across all financial institutions that offer online banking.

FDIC Insurance

Most banks are insured by the Federal Deposit Insurance Corporation (FDIC). FDIC insurance protects your deposits up to $250,000 per depositor, per ownership category in each bank. If your bank fails, FDIC insurance ensures your funds are protected up to the deposit insurance limits.

Data Encryption

Using federal guidance, online and traditional banks use strong online encryption, which prevents anyone besides your bank from reading your data, including your card numbers and other information.

Multi-Factor Authentication

Multi-factor or two-factor authentication requires layers of authentication before allowing you to access your account. For example, rather than only requiring that you type in your password, your bank may also require that you answer a security question or type in a PIN that’s sent to your phone or email inbox.

While many banks offer multi-factor authentication, you may have to activate it for your account. It’s often not automatically activated.

Automatic Sign-Out

Many online banks use automatic sign-out or time-out. If you use your bank’s mobile app or website and don’t log off when you’re done, you’ll be automatically logged out after a certain time passes. This prevents other people from opening your account on your device without having to log in.

Fraud Monitoring

If anyone hacks into your bank account or gets your debit or credit card information, many online banks have security monitoring to catch the fraud as quickly as possible. Your bank may contact you if they notice unusual activity on your account, and you won’t be held liable for any unauthorized transactions.

How to Know If an Online Bank is Legitimate

It’s understandable to be cautious of online banks. After all, you can’t just visit your local branch like you can a traditional bank or credit union.

Take these steps to verify an online bank’s legitimacy before opening an account and depositing your money.

Confirm the Bank is FDIC Insured

The FDIC offers an online tool to help you verify that a bank is legitimate and FDIC insured. You can search by bank name, FDIC certification number, and website. Using this tool can also be helpful if you know a bank is legitimate and it will help ensure you’re on the right URL.

Check for Customer Complaints

The Consumer Financial Protection Bureau (CFPB) has a searchable Consumer Complaint Database that accepts complaints about various financial products and services. If you’re considering opening an account with an online bank, check the database for any complaints. Be especially cautious if the same complaint occurs many times.

Note

The CFPB database doesn’t list depository institutions with less than $10 billion in assets.

Read Online Reviews

Online reviews with outlets such as the Better Business Bureau or online publishers are an excellent way to learn about customer experiences with a particular bank. While online reviews aren’t a guarantee of the type of service you’ll get, you can at least observe whether they’re generally positive or negative and whether there are any recurring problems.

Learn About Bank Security Measures

If you’re concerned about the safety of your money and your data, research what security measures an online bank uses. Many banks share this information on their website so prospective customers can find it.

Other Tips to Keep Your Money and Data Safe

Both online and traditional banks take steps to keep your information safe in your bank account. There are ways you further protect your money and keep your data secure:

  • Password protect your devices: Set up passwords on any devices you use for online banking, including your smartphone, tablet, or computer.
  • Set up multi-factor authentication: Most banks offer multi-factor authentication, which requires an added step to log in rather than just entering your password.
  • Use strong passwords and change them often: It’s essential to use a password that can’t be hacked. Not only should you use strong passwords that use a variety of characters, but you should update those passwords regularly, such as every three months.
  • Avoid using public Wi-Fi for online banking: Logging into your bank account from public Wi-Fi can make your account vulnerable and make it easier for others to view your information.
  • Use only private devices: Avoid logging into your bank account on a public computer or someone else’s phone. You could inadvertently grant someone else access to your account.
  • Be cautious of how you share bank account information: Avoid sending your bank account number or other private information, such as your Social Security number, via email. Your bank will never ask for this information by email or text.
  • Check your account for fraudulent activity: You can take various steps to watch for unauthorized activity in your accounts. Consider setting up text alerts for purchases or checking your account often.
  • Keep your software up to date: When an update is available for your phone or banking app, make sure to download it. Keeping up-to-date with updates ensures everything is running in peak condition and with the latest security features.

What Are the Risks of Online Banking?

The biggest risk of online banking is that someone could access your account by getting their hands on your username and password, hacking your account, exposing you to a virus, or using your debit or credit card to make a purchase. These risks exist for online and traditional banks offering online banking services.

How Safe is Online Banking on a Mobile Phone?

Online banking on a mobile phone can be safe, but it’s important to take safety precautions. Before setting up mobile app banking, password protect your device, set up multi-factor authentication on your account, and avoid logging into your bank account app on public Wi-Fi.

How Safe is Online Banking When I Travel Abroad?

Online banking while traveling internationally adds some additional safety challenges. Use your cellular provider’s data plan, use your country-specific chargers and adapters, and try to use a VPN for sensitive information. It’s also important to notify your bank of your upcoming trip. Many bank’s fraud monitoring systems trigger if you use your card in another country.

Are All Online Banks FDIC Insured?

Most online banks are FDIC-insured, just as most traditional banks are. You can always verify whether a bank is FDIC-insured by using the FDIC’s BankFind database of insured banks.

The Bottom Line

Online banking opens us up to different vulnerabilities than we might be exposed to with traditional in-person banking. Additionally, online-only banks bring new features to the industry that can lead to consumer mistrust.

However, online banks can be just as safe as traditional ones. Before opening an account with any bank, ensure the bank is FDIC insured, check what security measures they use, and enact security measures to keep your information safe.

Are Online Banks Safe? (2024)

FAQs

Are Online Banks Safe? ›

Every bank has its own set of security policies, but online banks are generally as safe as traditional banks since they often use the same preventative security measures, including: Encryption software. Multi-factor authentication.

What are the risks of online banking? ›

The biggest risk of online banking is that someone could access your account by getting their hands on your username and password, hacking your account, exposing you to a virus, or using your debit or credit card to make a purchase. These risks exist for online and traditional banks offering online banking services.

Is your money safe in online banking? ›

Yes, just about all online banks provide FDIC insurance of $250,000 per depositor, per FDIC-insured bank, per ownership category.

What is the main disadvantage of an online bank? ›

Online banking does have some potential disadvantages. These include a lack of face-to-face customer support, cash deposit services and a risk of technology failures or security breaches.

What are two good reasons to not use online banking? ›

Limited deposit and withdrawal options

Many online banks offer a limited number of deposit-taking ATMs, but if you don't have one of these nearby, you might be out of luck. That's why some people choose to maintain checking accounts at brick-and-mortar banks -- they can transfer cash to these easily.

What is the biggest danger when online banking? ›

Some of the biggest security issues associated with online banking include malware or phishing scams to intercept or steal customers' personal and financial information. Online banking is safe. However, hackers are constantly at work, finding new ways to get around security measures.

Which bank has the safest online banking? ›

NerdWallet's Best Online Banks of 2024
  • UFB Direct: Best for Online banks with savings accounts only.
  • EverBank: Best for Online banks with checking and savings accounts.
  • TAB Bank: Best for Online banks with checking and savings accounts.
  • Upgrade: Best for Online banks with checking and savings accounts.
May 10, 2024

Should I put my money in an online bank? ›

While the upsides of using an online bank often include higher rates and fewer bank fees, a potential downside can be the lack of branches. If you're a person who prefers being able to do your banking in person at a branch, it's probably best to stick with a bank that can accommodate that.

Is it good or bad to have online banking? ›

The lack of overhead gives internet banks advantages over traditional banks, including fewer or lower fees and accounts with higher APYs. Internet banks lack personal relationships, no proprietary ATMs, and more limited services.

Which banks are safest right now? ›

Summary: Safest Banks In The U.S. Of May 2024
BankForbes Advisor RatingProducts
Chase Bank5.0Checking, Savings, CDs
Bank of America4.2Checking, Savings, CDs
Wells Fargo Bank4.0Savings, checking, money market accounts, CDs
Citi®4.0Checking, savings, CDs
1 more row
May 9, 2024

Why do people not use online banking? ›

Cons of online banks

Customer service can be virtual and impersonal. You are more likely to incur ATM fees if the online bank has no ATM network or is part of a small network. You can't deposit cash unless the bank is linked to ATMs that accept cash. The number of products tends to be more limited at online banks.

What is the main problem in online banking? ›

Online banking is at risk of cybersecurity threats that could expose confidential and sensitive financial information of the customer. Hackers use various tactics like phishing attacks, malware, and ransomware to gain unauthorized access to accounts.

Are online banks in trouble? ›

No. Online banks use the same encryption and FDIC insurance that brick-and-mortar banks do to protect their customers.

What are 5 risks of online banking? ›

Due to the open nature of the Internet, all web-based services such as YAB's Online Banking are inherently subject to risks such as online theft of your User ID/UserName, Password, virus attacks, hacking, unauthorized access and fraudulent transactions.

Why are customers reluctant to use online banking? ›

Many, but not all, may lack the digital skills required to access their accounts through their bank's app or website, some older people remain reluctant to use the technology due primarily to safety concerns or a lack of interest, while others are excluded due to poor internet connectivity, especially in more rural ...

What percentage of Americans use online banking? ›

The tides have shifted, and the majority of Americans are now on board with digital banking. As of 2022, 78% of adults in the U.S. prefer to bank via a mobile app or website. Only 29% of Americans prefer to bank in person.

What is the biggest issue with online banking? ›

Online banking has several potential drawbacks that consumers should be aware of, including:
  • Limited services.
  • Security concerns.
  • System downtime.
  • Complexity.
  • Requirement of stable internet connection.
  • Privacy concerns.
Jan 4, 2023

What is the main concern in Internet banking? ›

Financial theft: Despite its convenience, online banking leaves users' accounts vulnerable to attacks that could see their money stolen. This is why it is essential to constantly monitor accounts for suspicious activity.

How vulnerable is online banking? ›

Identity theft poses a persistent threat, with cybercriminals seeking to exploit and abuse your personal information, often for financial gain. Online banking users are especially vulnerable to this risk.

What are the risks of online and mobile banking? ›

Hackers may abuse unprotected public Wi-Fi hotspots to dispense malicious software onto your device or steal login credentials. For this reason, avoid opening your mobile banking apps while connected to public Wi-Fi if possible and consider using a VPN to encrypt your connection.

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