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Are Online Banks Safe?

There’s a new banking trend you’ve probably noticed popping up in ads: the online bank. The commercials make these banks seem like the greatest invention since the ATM. But is online banking safe? After all, you don’t want some stupid hacker taking all your hard-earned money.

Don’t worry. Online banking is safe if you choose the right one and if you take some smart precautions. We’ll break it down for you.

What Is an Online Bank?

An online bank is just like a traditional bank except for one huge difference: a building. Online banks don’t have a physical location. You can only access them by using your cell phone, tablet, or computer.

People choose online banking because it’s quick and convenient—no waiting in line at the drive-thru teller. And they also like online banks because they often charge lower and fewer fees and give you better interest rates. That’s because they don’t have to pay for an actual building.

Risks of Online Banking

Even though online banking is popular because it’s handy and user-friendly, it’s not perfect. You take some risks when you go the digital route. Here are a few you may encounter:

Scary customer service. What you gain in speed and ease, you lose in face-to-face interactions. If you have a problem with your online bank account, you can’t walk into a branch and talk to the manager. You have to call customer service. And depending on the bank you choose, you may break the record for "time spent stuck on hold listening to crappy music."

The good news is some online banks emphasize great customer support, so you can be picky about who you work with.

Online banks can go offline. No website is perfect. Shocker, right? But when an online bank goes offline, you can’t just stroll to the nearest branch to transfer money to pay an upcoming bill.

The good news is, most problems get fixed quickly—since it’s the way the bank stays in business! However, to avoid this problem, keep some emergency cash on hand (but not in your wallet), or keep your emergency fund at a different bank. Problem solved.

Hackers. It’s the thing you most dread in today’s digital landscape. The word alone sounds like a horror flick. The possibility of someone stealing money from your bank account makes your skin crawl.

But there’s one easy way to prevent this: Make sure your online bank has freaking good security features.

If hackers do get into your online bank, you’ll likely get your money back if you contact the bank within 60 days to report the problem. But only if you didn’t do something outrageously stupid to become a victim, like post your password on social media.

Identity Theft. The only thing worse than having your money stolen is having your identity stolen. And the two go hand-in-hand. Even if hackers don’t take your money, they can still get your personal information—including your social security number—which they use to hack into your other accounts. The only upside (if there is one) is most hackers go after the big fish—business accounts with mega bucks. Individual accounts are minnows in comparison.

Scared to opt for an online bank? Don’t be. If you choose a secure bank and avoid mistakes that leave you vulnerable, your money will be safe and sound.

How to Keep Your Online Banking Secure

The online banks do their part by providing stellar security, but you have to do your part to make your online banking secure and protect yourself from identity theft. That means being aware of how hackers get your information and avoiding those cracks. Here are a few things to do.

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1. Choose an online bank with top-of-the-line security. This is the first (and most important) feature you want to research when choosing an online bank. One quick trick is to look at the bank’s web address. You want to see the letters “https” (rather than “http”) at the beginning. That little S means the address is secure. If the bank passes that first test, you can keep researching it.

Next, ask whether it has two-step verification to get to your account. To protect their customers, online banks and other businesses use this technique (also called two-step authentication). When you log in to the website, you type in your account number and password. That’s step one.Step two requires you to provide additional information, often the answer to a question like, “What is your mother’s maiden name?” or “What is the name of your childhood crush?” It could also be a passcode sent to your cell phone or even your fingerprint.

This second set piece of information isn’t nearly as easy to steal, so it gives you extra protection. And when it’s your money, you want your online bank to be a virtual Fort Knox. If an online bank is lax with its privacy and security, go elsewhere. You’ve got too many choices to stick with one that has the security level of your mom’s blog.

2. Don’t do your banking on public Wi-Fi.  If you’re at a coffee shop or library, you can’t control who’s around you. Like the hacker who’s recording your keystrokes as you type. It’s called “keylogging,” and it’s a real thing. It can also be done with a video camera that records every single thing you type. Then, thieves review the footage to get your personal information, the scuzzy snakes.  

Keylogging is only one of the ways hackers can get into your account while you’re on public Wi-Fi. Since you can’t prevent every single possibility, just steer clear of doing online banking while you’re out in public.

3. Be careful with your debit card. This isn’t news to anyone, but some people are dishonest. Con artists and swindlers are constantly looking for ways to put some of your money in their pocket, so don’t make it easier for them with your debit card. Don’t say your PIN number as you type. Don’t keep your PIN number in your wallet. Because people steal, right? And never, ever post pictures of your actual debit card on social media. That’s just inviting a hacker to break into your account.

4. Change passwords regularly. Yeah, we get it. Changing your passwords regularly is a pain. Who can keep up with all the different passwords you use on every online account? Email. Social media. Shopping accounts. Your school website. The list is as endless as the internet itself.

It’s tempting to use a favorite password on all your accounts and keep that password the same, but that’s like waving a bunch of $100 bills to a hacker. The problem is, once they’ve figured out your favorite password (and their variations), they have access to everything.

If you don’t change your passwords often, your online accounts will eventually get caught with their pants down (metaphorically speaking), which is sad because the fix is simple. Keep a list of sites and passwords on a piece of paper you leave at home and update it regularly. Low-tech saves the day!

5. Get identity theft protection. Sometimes called fraud monitoring, you need identity theft protection regardless of who you bank with. For a small monthly (or yearly) fee, a company will alert you if it detects a breech in your personal information, such as someone else using your social security number or a new credit card being issued in your name. The best monitoring companies will help with the recovery if you become the victim of ID theft.

Online banks have their own version of monitoring. For instance, some will text or email you when a large transaction hits your account. That way, the bank knows you spent the money and not some cyber-jerk.

Some banks also offer fraud monitoring as a free service. Even if you have to pay a small fee every month, fraud protection and detection along with identity theft  is a must-have in today’s hacker-happy world.

Are Online Banks Safe?

Here’s the bottom line: Every bank has its weaknesses, even the one sitting around the corner. And just like a physical bank, online banks are safe when they do their best to protect your money and when you do your best to stay alert and make smart decisions. When that happens, you can take advantage of the benefits of online banking, like the lower fees and higher interest.

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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