Are Online Savings Accounts Safe?

Online savings accounts are increasing in popularity. They offer higher interest rates and lower fees, helping your money to go further. But are online savings accounts safe? Yes! Even though a bank is online and doesn’t have a brick-and-mortar location, it can be federally backed, meaning your savings are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000 per account holder. 

While anything on the internet — including traditional banks’ websites — is not 100% secure, online banks use some of the most robust security measures available to protect your funds. Read on to learn the safety measures of online banks and how you can keep your money secure. 

How Online Savings Accounts Work

An online savings account allows you to do your banking from a computer or smartphone anywhere in the world. Online savings accounts allow you to open an account or transfer funds online without needing to visit a bank or credit union branch. Because many online savings accounts are offered by companies that don't have brick-and-mortar branches, you wouldn't be able to do in-person banking even if you wanted to — a potential drawback for some people.

What is an online savings account? It is a traditional savings account that allows you to easily do everything online. 

Many traditional banks and credit unions that operate brick-and-mortar branches also provide online accounts. But online-only banks may offer features and options that make their savings accounts stand out. These include higher interest rates, lower fees and lower minimum balances. 

While not every online bank is federally backed, the majority of online savings accounts are with FDIC-insured banks. The FDIC protects depositors of insured banks in the United States against losing their deposits if the bank fails. As long as you choose an FDIC-insured online bank or National Credit Union Administration (NCUA)-insured credit union, your funds are secure. 

Online Savings Accounts Security Measures

How safe is online banking? Generally, online banking is very safe. In addition to federal insurance and other savings account features, you want to choose an online savings account that uses various security measures to prevent hackers from accessing your account information. These are the top security measures to look for in online savings accounts.

Secure Encryption

Online savings accounts use encryption protocols such as Secure Socket Layers/Transport Layer Security (SSL/TLS) to protect data transmission between the user's device and the bank's servers, ensuring that information remains encrypted and secure. Look for a website URL that starts with https (rather than just http) to show that site uses SSL. 

Multifactor Authentication (MFA)

Online banks often require multiple factors of authentication, such as passwords, security questions, one-time codes sent via short message service (SMS) or email or phone verification for login from new devices. Multifactor authentication is one of the most important features to enhance security and verify the user's identity, preventing unauthorized access. 

Fraud Detection Systems

Banks employ sophisticated systems to detect and prevent fraudulent activities, including monitoring account activity for suspicious behavior or transactions and monitoring the devices connected to the accounts and locations. If there are any signs of suspicious activity, you’ll be immediately notified of potential risks. You may also be asked security questions at login for additional security. 

Account Activity Notifications

Likewise, online savings accounts often offer account activity notifications via email or mobile alerts, enabling customers to monitor and promptly report unauthorized transactions or suspicious activity.

Firewalls and Intrusion Detection Systems

Banks use robust firewalls and intrusion detection systems to protect their servers and network infrastructure from unauthorized access and cyber threats. While any institution with an online presence isn’t 100% beyond cyber threats, banks employ some of the most comprehensive measures to protect customers’ accounts and information. 

Secure Account Management

Online savings accounts also enforce secure account management practices to better protect you. These include periodic password changes, session timeouts and account lockouts after multiple failed login attempts. This also makes it harder for hackers to access your account directly or by attempting to guess your password. 

Data Encryption

Customer data stored in databases or servers is often encrypted to ensure that the information remains protected even if there is unauthorized access.

Compliance with Regulatory Standards

Online banks adhere to industry regulations and standards, such as the Payment Card Industry Data Security Standard (PCI DSS) or the general data protection regulation (GDPR), to ensure the security and privacy of customer data.

5 Tips for Ensuring the Safety of Your Online Savings Account

While banks do the maximum to protect customers’ information, many bank account breaches happen because of mistakes made by customers. Here’s what you can do to ensure that your account is secure. 

Strong and Unique Password

Create a robust and unique password for your online savings account that includes a combination of letters, numbers and special characters. Avoid using easily guessable information like your name or birthdate. For passwords, the longer, the better. Longer passwords are statistically more difficult for hacking bots to guess. For the strongest password, avoid any words found in a dictionary and instead use a long combination of upper- and lower-case letters, numbers and special characters.

Enable Two-Factor Authentication (2FA)

Activate two-factor authentication for your online savings account. This adds an extra layer of security by requiring a second form of verification, such as a unique code sent to your mobile device and your password.

Regularly Update Your Password

Change your password periodically, ideally every few months, to minimize the risk of unauthorized access. Avoid using the same password for multiple accounts, and make sure to create strong passwords. A password manager can help keep track of your unique passwords for many accounts. 

Be Wary of Phishing Attempts

Be cautious of emails, messages or phone calls requesting your account information or personal details. Legitimate banks will never ask for sensitive information via email or phone. Always verify the authenticity of any communication before sharing information. For example, check the sender’s email address, not just the sender’s name. Usually, phishing emails come from an unusual email designed to appear like your financial institution or may have a logo that appears off.

If the message seems legitimate, don’t click any links. Instead, navigate directly to the bank’s website or open the app to perform the requested activities. This prevents you from giving your password or confidential information to a phishing site imitating your bank. 

Secure Internet Connection

Only access your online savings account from a secure and trusted internet connection. Avoid using public Wi-Fi networks, which may be vulnerable to hacking attempts. If you must use public Wi-Fi, such as at a hotel while traveling, always use a virtual proxy network (VPN) to protect your account information. 

Online Savings Accounts vs. Traditional Savings Accounts

How does an online savings account work? Online savings accounts offer many of the same advantages as traditional savings accounts, often with lower fees, higher annual percentage yield (APY) and greater convenience. Online savings accounts give you 24/7 access to funds and advanced online account management tools. In many cases, they also offer 24/7 customer service even if they lack in-person customer support and relationship banking. 

Traditional savings accounts provide access to in-person services and potential relationship banking benefits, such as helping you secure better terms on a mortgage or business loan as a long-time customer. But traditional savings accounts usually have lower interest rates and may require higher fees and minimum balance requirements.

Final Thoughts on Online Banking Safety

Are online banks safe? Yes. You can confidently choose an FDIC-insured bank that offers strong security measures such as account monitoring, firewalls and data encryption to keep your information safe. In the digital age, online banks’ savings accounts are emerging as competitors to traditional banks to help you grow and secure your wealth.

Frequently Asked Questions