Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Are Online Banks Safe for Consumers?

Some of the best online banks would quickly cease to exist if consumers felt unsafe using them. That’s why online banks put much thought and care into keeping their customers’ money safe.

It begins when you first open an account. As described below, the bank may send you an email or text message to confirm your identity. You’ll then be asked to create a solid password of sufficient length and complexity so as to thwart most hackers. The bank will usually grade your password and reject ones that are too easy. Some banks make you change passwords periodically.

A powerful security procedure is two-factor authorization, in which you must provide a second piece of data in addition to your password when signing in. For example, you may be asked to create a PIN (personal idea number), which is a four or five-digit number that serves as a secondary password.

The Advantages of Two Factor Security

Some banks may ask personal questions, such as your mother’s maiden name, and use your answers as a secondary factor. Asking you to choose a picture from an image library and associate it with your account is another secondary factor banks can use to verify your sign-in.

Perhaps the most powerful two-factor approach is the use of a security token. You carry around a fob that generates a new six-digit token every 30 seconds. You must provide the current token to sign onto sites that use this procedure. If you are very concerned about security, find a bank that uses security tokens and have them provide you with a fob. A verbal password can also be used as a secondary factor.

Just about all of the best online banks use high-end decryption to prevent hackers from stealing your information as it travels over the Internet. Encryption scrambles your data in a way that can only be decoded by the intended recipient. The most secure form of encryption allowed by U.S. law uses a 128-bit algorithm, and you might want to verify that your online bank uses encryption at that level.

How To Ensure an Online Bank is Safe

There are some common sense steps you should take to ensure an online bank is legitimate and your deposits are safe:

  • ​Read the “About Us” section of the bank’s website to learn how long it’s been in operation and whether your deposits are FDIC-insured.


  • ​Verify the financial institution’s description of itself by checking its Better Business Bureau entry. Do an online search to see if the bank is or has been the subject of a lawsuit or regulatory action. You can also verify FDIC coverage using the Bank Find.

  • ​Be wary about using public Wi-Fi networks, especially ones that do not require a password. Just to be safe, ensure your device’s security software is up to date (you do have security software, don’t you?).


  • Turn off file sharing to prevent unwanted connections. Using a virtual public network (which you can download for free from several sources) is a further protection against snooping when using a Wi-Fi hotspot.


  • ​If using a browser to connect to the bank website, verify that you’re using the correct URL. The prefix should be “https:” where the ‘s’ indicates an extra layer of security. Sometimes, crooks set up spoof websites with names that are similar to legitimate ones.


  • Request your bank institute dual authentication for all wire transfers. This requires the bank to contact you directly before wiring money, and will block criminal attempts to wire money out of your account.

As long as you take precautions, you can assume that the best online banks are relatively safe. However, stay alert for news stories about hackers stealing data from a bank. If that happens to your bank, you’ll need to change passwords and order new bank-issued credit and debit cards.