Online Banking Security

Safer than you may think

The economic recession adds another component to concerns about online banking security: Will the bank fail or survive? If it fails, what happens then? The FDIC reports that 140 banks failed in 2009, with another 86 in the first half of 2010 -- compared with 25 for the entire year of 2008 and just three in 2007.

Experts say that even if a bank fails, your FDIC-insured funds are usually available within a day or two -- whether your account is online or at a brick-and-mortar bank. As long as you keep FDIC insurance rules in mind when opening and maintaining online bank accounts, your money will be safe. As of July, the FDIC raised its coverage limit to $250,000, up from $100,000 per account. Our Useful Links page includes a section with links to more information on the FDIC terms, plus links to sites that provide ratings of specific banks.

Other concerns about online banking security have to do with preventing identify theft and protecting funds from unauthorized transfer. (FDIC insurance doesn't protect funds against theft.) Experts say these are basically the same issues when banking at brick-and-mortar banks, since they also transfer funds electronically, issue debit cards and store customer information in their networks. In fact, some experts argue that online banking is actually safer because there's no paper trail for thieves to find and use.

In recent years, banks have improved their security systems and have added more layers to their authentication procedures. Users are also getting better educated about how to make a password that's difficult for a thief's computer robot to guess. Although the latest Javelin report says identity fraud is on the rise, experts say that people with online accounts are able to detect unauthorized transactions more quickly -- and prevent greater losses -- than those who rely on monthly paper statements. Also, some banks, such as Citibank and Bank of America, now offer full reimbursement of any funds lost through fraud.

Also, be aware of phishing attempts -- usually emails intending to trick you into providing account information that gives a thief access to your account or identity. To be safe, always go to your bank's website by typing its address directly into a browser rather than clicking on an email link. Emails asking for account information are almost always fraudulent.

Despite the crisis in the financial industry, security experts say that online banking is safe, as long as you choose a bank that's FDIC insured and limit your account balances at any one bank to $250,000. (This is up from the previous limit of $100,000.) Experts also say that online banking is even safer than using paper checks, as long as you do your part to protect your security with conscientious online behavior and security software.