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ews about data breaches and malicious hackers is common enough that doing your banking online may sound like a risky proposition. Even so, many online banks are offering lower fees and interest rates than traditional banks, making them an easy choice for tech-savvy people looking to save money. But how safe is online banking really? Let’s take a look.
What is an online bank?
Living in the digital age, online banks are becoming an increasingly popular option. These banks operate completely online and don’t have any brick-and-mortar branches, which saves the bank on overhead costs. In turn, they are often able to offer clients low-cost or no-fee banking services, in addition to higher-than-average interest rates on savings accounts and investment products.
Online banks allow you to do everyday operations from your computer or smartphone. They may not have their own ATMs, but many will allow you to use other ATMs for free. Because of the lower operating costs, most online banks will let you have a checking account with no minimum balance.
Protective measures online banks take
Almost one-third of Americans report that they haven’t opened an online bank account because they're worried about the safety and security of their money. However, online banks take several measures to protect the assets of their clients.
Many online banks have the same Federal Deposit Insurance Corporation (FDIC) insurance and protection that brick-and-mortar banks do. Banks that are FDIC-insured cover each depositor up to $250,000 in the event of bank failure. It’s important to note that banks aren’t automatically insured, so those that are have to pay a premium to have it. FDIC insurance will cover:
- Checking, savings, and money market accounts
- Cashier’s checks and money orders
- Certificates of deposit (CDs)
Encryption and 2FA
Online banks use encryption technology that scrambles data so only the intended recipient can read it. The industry standard is 256-bit AES encryption, which is considered virtually unhackable and keeps our personal and banking information safe from potential hacking attacks.
Two-factor authentication (2FA) is another powerful tool that helps keep your accounts safe. This security method uses a combination of passwords and devices, like your cell phone, to verify that the user is who they say they are.
How to vet an online bank
If you’re considering taking advantage of all the benefits that online banks offer, it’s important to do your research before you settle on one. Here’s what to look for.
Look at websites and reviews
Once you’ve found a bank that appeals to you, look at its website to find the conditions it offers customers and the products and services available. Search the web for reviews to read about experiences that others had with this bank.
Check that it’s FDIC-insured
As mentioned, banks aren’t automatically FDIC insured, so you want to make sure that your online bank is. There are several ways to do so:
- Use the FDIC’s BankFind tool
- Call the FDIC at 877-275-3342
- Call the bank's customer service line to inquire
Make sure it uses industry-standard security measures
Check your online bank's website to learn about its security features and ensure they're using industry-standard measures like 256-bit AES encryption. Standard tools that any online bank should use include encryption, firewalls, and fraud monitoring.
Security tips for keeping your money safe
Your online bank should have a number of security features and tools to protect your accounts. Even so, there are a few more steps that you can take to make sure that your money is safe when you perform online banking operations.
Don’t click links in texts or email
The internet is rife with phishing scams that encourage recipients to click on a link in an email or text message. Even if the website in the email looks like your bank’s, it could be a dummy site that allows scammers to then access your login information.
Don’t use public WiFi networks
While convenient, public WiFi networks aren’t very secure. If you can, wait until you’re at home to use your banking app or rely on your phone’s data plan to avoid exposing sensitive information over an unsecured network.
Most online banks require 2FA, but if yours doesn’t, you should always opt into it. This ensures that a hacker would need to have your phone and your login information in order to access your account.
Choose a strong password
Using your birthday as your password might be easy to remember, but it’s also easy for others to guess. A strong password should have a mix of uppercase and lowercase letters, as well as numbers and special characters. Avoid using personal information that’s easy to guess.
Configure activity alerts
Online banks are very good at letting customers know when there is activity on their accounts. To make sure that you’re always in the know, set up alerts on your account so you’ll receive a mobile app message or email anytime there's activity.
Keep your anti-virus software updated
Keeping your antivirus software up-to-date ensures that your devices and accounts are protected against the latest threats and scams, like spyware.
What are the risks of online banking?
While generally safe to use, online banks aren’t perfect. Websites and apps can go offline, making it impossible to access your bank until the issue is resolved.
Even with robust security features, hacking and identity theft are still possibilities. The good news is that you should be protected in the event that your account was hacked as long as you report it as soon as you notice it.
Are online banks safe?
As long as your online bank is FDIC-insured, it is just as safe as a traditional bank. Security features further ensure that your account stays safe wherever you go.
Discover the power of online banking with Novo
Novo is an online banking platform that was built with businesses in mind and offers easy-to-use tools, automated features, and detailed financial insights. Novo is FDIC-insured and uses industry-standard practices and security measures to safeguard information, making it a safe choice for your business checking account.
Reach out to Novo now to discover the ease of online banking and how it can level up your business.
Novo is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A.: Member FDIC.
Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.
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