Online Banking Security

Safer than you may think

The financial crisis adds another component to concerns about online banking security: Will the bank fail or survive? If it fails, what happens then? At the time of this report, bank failures seem to be accelerating. The FDIC reports that as of April 13, 2009, 23 banks have failed in 2009 -- 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. 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 also 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.

The latest Javelin Research study, dated February 2009, reports that although identify theft rose in 2008 after three years of steady declines, it's not because of online banking. The main sources are labeled "low tech" -- lost wallets, checkbooks and credit cards. Only 11 percent is attributed to online access. This figure is declining, and the report predicts continued declines as more people replace paper bank statements and paper checks with online access and bill paying.

Eleven percent of 9.9 million cases a year of identity fraud is still nothing to be complacent about. G. Jeffrey MacDonald's April 2007 article in the Christian Science Monitor asserts that the main risks in online banking "exist on your computer." A virus or Trojan horse can log keystrokes or plunder your computer files to give a thief your passwords and logon information. Experts such as MSN Money columnist Liz Pulliam Weston note that it's essential to protect your computer with a secure firewall and updated anti-virus software -- to keep your passwords and personal data secure. Updating your computer's operating system with the latest security patches is also vital.

Not everyone agrees that the main risk is in online banking customers' computers. A 2006 study at the University of Michigan found serious security flaws in 75 percent of the 214 banking websites evaluated. In the intervening 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. 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.

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. (The limit returns to $100,000 in 2010.) 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.