According to the latest consumer banking statistics, a whopping 71% of American bank customers use online banking regularly, while 43% use mobile banking apps. Online banking is clearly here to stay, but that doesn’t mean you should automatically feel comfortable hopping on the bandwagon. After all, this is your money and sensitive personal info we’re talking about. So you’d be smart to ask, “Is online banking safe?”
To answer that, we’ve laid out the pros and the cons, as well as precautions you can take to stay protected. First, let’s clarify what online banking is, though.
What is an online bank?
An online or internet financial institution isn’t much different than a traditional bank, though online-only banks often have limited or no storefront locations. You can do just about all of the same basic tasks at both online and conventional banks. That includes transferring money, paying bills, and making deposits.
The biggest difference is that you can use online banking anytime and anywhere you have an internet connection.
Helpful resource: Online Business Bank Accounts: Top Options and How to Choose
Are online banks safe to use?
You’ll be relieved to know that internet banks follow many of the same security measures as traditional ones.
The Federal Deposit Insurance Corporation (FDIC) automatically insures online bank accounts for up to $250,000. In the rare event that your bank goes bust, you don’t lose your hard-earned money.
Besides being FDIC-insured, online banks use the same high level of data encryption as traditional financial institutions.
Unfortunately, security breaches aren’t 100% out of the question with online or traditional banking. But you can breathe easier knowing that there are measures in place to protect you, especially since banks are improving the security of their desktop sites and mobile banking apps all the time.
So, yes, online banking is relatively safe. And you can make it even safer if you take extra precautions. But should you choose to handle financial transactions online?
Pros and cons: Should you use an online bank?
Here are some advantages and disadvantages of using internet banking.
Pros of Online Banking
Convenience and efficiency. Bank from the convenience of home or, really, anywhere with an internet connection (check out our section on safer online banking below for more tips).
Online banks aren’t limited to business hours, which means you can transfer money, open and close accounts, deposit checks, and more at any time, usually within minutes.
Better rates and lower fees. Online banks have lower overhead costs than their traditional counterparts since they have no or few branches and tellers and often use existing ATM networks instead of owning their own ATMs.
The money that online banks save by keeping their brick-and-mortar presence minimal means that monthly fees associated with having an account are lower or even non-existent. You’ll also see higher interest rates or annual percentage yields (APYs) on savings.
Great for account monitoring. 24/7 access to your transaction history makes it easier to catch any fraudulent activity early.
Good for online business. If you do a lot of business online, it is always a good idea to set up a business bank account and route all of your income through it. Separate bank accounts make it easier to keep records and pay taxes.
If these pros sound good to you, it may be time to give online banking a try, but there are a few cons to be aware of as well.
Cons of Online Banking
It may take some getting used to. If you’re not tech-savvy, a mobile banking app or banking website can be an adjustment. On the bright side, though, you can always get in touch with the customer support team if you’re having trouble.
Lack of face-to-face interaction can be less-than-ideal. While a quick transfer or bill payment doesn’t require a teller, there are other times when face-to-face banking is best. For example, if you’re applying for a loan, familiarity with the local bank staff may help you get it.
Financial services may be limited. Services available will depend on which internet bank you choose. For example, you may not be able to manage brokerage or insurance accounts, or there may be a limit on the amount of cash you can withdraw online. Physical services like notarization may also be out of the question unless there’s a branch nearby.
If these services are important to you, be sure to do your research beforehand to find the best bank for your small business needs.
Nearby ATM options may be limited. Many online banks use ATM networks, which means that the location of ATMs within their chosen network varies. If your bank of choice doesn’t have ATMs available near you, you’ll have trouble withdrawing and depositing cash into your accounts.
Some ATMs charge transaction fees, too, so you’ll either want to be prepared to pay up or go with a bank that reimburses you.
Top tips for safer online banking
If you’ve decided that online banking is right for you, here are some tips to help you keep your money and personal information safe:
Use a strong password and change it often. We’ve probably all been guilty of using weak, easy-to-guess passwords at some point. But if there was ever a reason to have a strong password with letters, numbers, and symbols, it should be to safeguard your banking information.
Use a password generator to create a random one that’s completely unrelated to your personal information, and change it every few months to keep your account secure.
Avoid saving your login info. You know the pop-up that appears on some websites asking if you want to save your username and password? Never use it for banking login info. If you do, and then someone else accesses your computer or mobile device, they’ll have easy access to your accounts.
Turn on two-factor authentication. Each time you log in, you’ll be texted or emailed a code to enter on your bank’s login page or screen. Multi-factor authentication is a quick way of verifying that it’s really you trying to access your account and not someone who’s stolen your password.
While two-factor authentication takes a few extra seconds, it also adds an extra layer of security.
Avoid accessing online banks on public wi-fi. Hackers can even access devices on unsecured home wi-fi networks, so imagine how vulnerable banking on a public wi-fi network would make you! On unsecured public wi-fi, you could fall victim to a practice known as “keylogging,” in which a hacker uses software to record your keystrokes and obtain your private account details.
You can help avoid identity theft by only accessing your bank’s website or mobile app when you’re on a secure wi-fi network with a password or using your phone’s data connection.
Watch out for phishing scams. Often, hackers use what are known as “phishing” emails to trick you into giving up your banking login info. At first glance, these look like legitimate emails from your bank and instruct you to log into what looks like your bank’s actual website. Phishing emails are actually dangerous clones of the real thing and use malware to gather your banking login details.
If an email looks suspicious in any way, don’t use any links it provides to access your account. Type the website URL into the search bar yourself to make sure you end up on the bank’s official website.
What might give away a suspicious email as a phishing attempt? Red flags can include a questionable email address (such as email@example.com), typos, awkward greetings, or offers that are too good to be true.
Keep an eye on your accounts. You’d be surprised how easy it is to miss unauthorized transactions or other fishy activities if you’re not paying attention. This is especially true with online savings accounts, which you might not use or think about as often as your checking account.
Check your balances and transactions regularly and, if you notice anything strange, contact your bank right away.
Make sure your devices are up-to-date. As soon as your computer or mobile device manufacturer releases a new update, install it. Otherwise, you could be missing the latest firewall or security features and become a target for hackers.
If they successfully infect your computer with a virus, they can get access to your business bank accounts and make off with your money before you know it. That’s why it’s also recommended to use antivirus software.
These seven precautions can give you peace of mind if you choose to handle financial transactions online.
Will you start banking online?
Internet banking is relatively safe, especially if you take extra precautions. But, as we’ve seen, there are many things besides safety to consider when deciding if it’s right for you. What do you think: do the pros of banking online outweigh these potential disadvantages? If so, the next step is to look into your options for the best online business bank accounts.