Are Online Banks Safe?
Offline identity fraud occurs more often than online fraud, and features of electronic banking actually make your finances more secure. Learn six ways to amp up the security even more.
According to Pew Internet & American Life Project, more than 40 percent of Americans do some of their banking online. In fact, online banking is one of the fastest growing Internet activities, with more people managing their money online than looking for jobs, using social networking sites, bidding on auction sites like eBay, and reading blogs.
Online banking is no doubt convenient, and the high interest rates might be alluring, but how safe is it, really? Getting the best interest rates on savings is important, but many people wonder if their money is as secure as it is when you keep your dealings offline with a brick-and-mortar bank.
Online banking: Riskier or safer?
Despite suspicion and fear, online fraud isn't as common as the Hollywood blockbuster movies might have you believe. Javelin's Identity Fraud Survey Report (consumer version), a resource for the Federal Trade Commission and Better Business Bureau, found that "friendly fraud" is still far more common:
Many identity thefts can occur through traditional methods such as stolen wallets and "friendly frauds," in which the crime is committed by a person known to the victim. In fact, among the victims who knew how their data was taken, lost or stolen wallets, checkbooks, or credit cards accounted for nearly two times as many instances of theft as all online attack methods combined. Identity theft occurrences are often the result of the most remedial and simple ways to steal information, not through hacking or elaborate Internet schemes.
And while identity fraud has been on the rise, the report found that the average dollar amount the victim pays out-of-pocket is lower than it has ever been.
Furthermore, banking online with paperless statements and instant updates actually can thwart fraud or catch it sooner. The report recommends requesting paperless statements, enrolling in direct deposit, and using electronic bill payment. These services can prevent unnecessary exposure of paper documents that contain sensitive information.
Finally, Internet banks with the Federal Deposit Insurance Corporation (FDIC) seal are insured the same as FDIC-insured brick-and-mortar banks. Just make sure to keep your deposits within FDIC limits.
Consumers also can take proactive steps to prevent online fraud. The following precautionary recommendations from the Javelin report can help protect you from identity fraud:
- Request electronic statements, direct deposit, and use online bill pay. Lock sensitive financial information in a safe. Shred all paper statements or documents.
- Prevent online criminal access. Install anti-virus software and keep it updated. Secure any electronic records with a password. Don't respond to any requests for personal information, whether online or over the phone, and be wary of imitation sites that are meant to look like official bank or credit card company sites. Your statements should list the official website and phone number.
- Strengthen your password. Use unique passwords with a mix of letters and numbers, even for your wireless Internet connection, and don't access secured financial sites on public Wi-Fi.
- Monitor your accounts. Log on at least weekly, or sign up for alerts. Javelin found that victims who self-monitored and used timely methods to discover fraud paid less out-of-pocket costs.
- Keep an eye out for fraudulent establishment of new accounts. Request your credit reports to catch new accounts that might have been opened in your name. You can get a free credit report each year from each of the three major credit bureaus.
- Take fraud alert letters seriously. If you receive a letter notifying you that your information was involved in identity fraud, confirm that the letter is legitimate and then place a fraud alert on your credit report to make sure lenders know to take extra precautions to verify your identity when someone applies for credit in your name. According to Javelin, one in four alert letters are followed by actual fraud, but many of those alerted failed to protect themselves.
As found in the identity fraud report, you're still more likely to be a victim of offline fraud, and several online banking features are actually good precautionary measures that can protect your sensitive financial information. There also are steps you can take to protect yourself even more. Educate yourself and be proactive with your finances and you can enjoy both the convenience and the safety of banking online.