Are online banks safer than traditional banks?
If they're FDIC-insured, online banks are as safe as traditional brick-and-mortar banks in many ways. You can also take steps as a consumer to ensure your account is as protected as possible when banking online, whether you bank with a brick-and-mortar or an online bank, also called a direct or digital bank.
Security is the same overall, with both types employing such measures as encryption to protect your funds and identity. But even if both types have become close cousins in some ways, important distinctions remain. Direct banks leverage their lower costs to offer better interest rates and, often, lower fees.
- Phishing. Phishing is a means of gathering personal information by posing as a trusted institution—like your bank. ...
- Viruses. If your bank doesn't use secure software, you could be exposed to malware or viruses that can corrupt your computer or phone.
- Maintenance outages.
Online banks are better than traditional banks when it comes to minimizing fees and securing the most competitive rates. These banks also tend to offer superior websites and mobile apps with more features. When it comes to finding a full range of financial services all in one place, traditional banks tend to win out.
Most online bank accounts are FDIC insured. In the unlikely event your bank goes out of business, the FDIC must recover up to $250,000 per account per bank. Joint accounts are insured up to $250,000 per co-owner per bank. So if a married couple has a joint checking account, it would be insured for up to $500,000.
If they're FDIC-insured, online banks are as safe as traditional brick-and-mortar banks in many ways. You can also take steps as a consumer to ensure your account is as protected as possible when banking online, whether you bank with a brick-and-mortar or an online bank, also called a direct or digital bank.
- No physical branches. A traditional bank provides the opportunity to have face-to-face interaction with the staff at your local branch. ...
- Cash deposits can be a challenge. Internet banks make depositing a check from your phone easy, but cash can be a little trickier. ...
- You can't get foreign currency.
Bank | The Ascent's Rating |
---|---|
American Express® National Bank | 4.50 |
Quontic | 4.50 |
Capital One | 4.50 |
Chase | 4.50 |
Open an online bank account if you prioritize easy access and high returns on deposits. Online banks typically offer the best rates and lowest fees of any bank type. Online banks don't offer branches and assume you're proficient with navigating online apps and websites.
Fortunately online banks are generally very safe, though some may have more security features than others. Online banks are FDIC-insured just as traditional banks are, meaning each customer is protected by up to $250,000 per bank, per account ownership type.
What is the #1 online bank?
Institution name | Top APY |
---|---|
Laurel Road | 5.00% |
Everbank | 5.15% |
Capital One | 4.35% |
Discover Bank | 4.35% |
You can typically find higher rates at online banks, compared to traditional brick-and-mortar banks. That's because traditional banks need to maintain physical branches, which can be a significant cost. Lower overhead may give online banks an edge, in terms of rates.
Withdrawing and Depositing Cash
According to the GOBankingRates survey, 40% of Americans go to a physical bank branch to cash or deposit checks. In addition, 38% bank in person when they need to make large cash deposits. Making these transactions in person can also add an extra layer of security.
Bank NameBank | CityCity | Closing DateClosing |
---|---|---|
Heartland Tri-State Bank | Elkhart | July 28, 2023 |
First Republic Bank | San Francisco | May 1, 2023 |
Signature Bank | New York | March 12, 2023 |
Silicon Valley Bank | Santa Clara | March 10, 2023 |
When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out. Funds beyond the protected amount may still be reimbursed, but the FDIC does not guarantee this.
Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.
- Password-protect all banking access. ...
- Choose strong and unique passwords. ...
- Enable two-factor authentication. ...
- Log out when you finish banking. ...
- Avoid public Wi-Fi. ...
- Don't use a shared computer. ...
- Sign up for banking alerts. ...
- Guard against phishing scams.
Our picks for the best online banks are SoFi Bank, Discover Bank, Ally Bank, Varo Bank, LendingClub, Upgrade, Alliant Credit Union, FNBO Direct, Zynlo Bank and Quorum Federal Credit Union. You may get a higher annual percentage yield (APY) compared to traditional banks when you choose an online-only bank.
Risks of mobile banking
The 2021 Nokia Threat Intelligence Report indicated that 50% of banking malware is targeted toward Android users, because Androids run on a fully open-source operating system. Cyberattacks triggered by hackers, unexpected glitches, and user mistakes can all undermine an app's security.
As of 2022, 78% of adults in the U.S. prefer to bank via a mobile app or website. Only 29% of Americans prefer to bank in person.
Why is mobile banking considered riskier than online banking?
Expert-Verified Answer
Mobile banking is considered riskier than online banking because of the following facts: Mobile devices are more likely to have malware loaded on them. (Malware specifically targeting mobile devices has become a very real and prominent threat). Mobile devices are more likely to be lost or stolen.
- Limited hours: Physical banks have set hours, so you'll need to do your banking when they're open. ...
- Higher fees: Traditional banks typically charge higher monthly fees than digital banks. ...
- Not every experience is the same: The selling point of traditional banks is human interaction.
- First Republic Bank (FRC) . Above average liquidity risk and high capital risk.
- Huntington Bancshares (HBAN) . Above average capital risk.
- KeyCorp (KEY) . Above average capital risk.
- Comerica (CMA) . ...
- Truist Financial (TFC) . ...
- Cullen/Frost Bankers (CFR) . ...
- Zions Bancorporation (ZION) .
The most popular banks in the U.S. are regional banks like Truist Financial, TD Bank and First National of Omaha. The worst banks are Wells Fargo and Citibank. Wells Fargo is the worst bank overall, with a high percentage of unresolved complaints and loss of Better Business Bureau accreditation.
Wells Fargo (WFC)
A member of the big four bank stocks, Wells Fargo (NYSE:WFC) in recent years courted some ugly controversies. Nevertheless, it finds itself as one of the least likely financial institutions to fail.
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