What Is Online Banking?
Online banking is a way of completing banking activities electronically — such as checking account balances or transferring funds — through your bank’s or credit union's website or mobile app. Most financial institutions now offer online banking portals and mobile apps, and a growing number of reputable online-only banks don't operate physical branches at all.
The majority of U.S. consumers now rely on online banking to manage their accounts, with mobile apps being the most popular way to bank. This is true for all generations except baby boomers — most boomers rely on online banking but favor accessing their accounts via a computer rather than a mobile app.
It's important to note that peer-to-peer payment apps like Venmo, PayPal and Zelle are not considered online banking. These apps offer a convenient way to send and receive money but come with fewer consumer protections and lack Federal Deposit Insurance Corporation (FDIC) insurance. Most banks are FDIC insured, meaning the money in your bank accounts is protected against loss.
How Do Financial Institutions Keep Online Banking Safe?
Banks and credit unions have a vested interest in keeping online banking safe, as failure to do so can cost them millions. Here are some measures financial institutions use to keep your money safe.
- Antivirus protection: Financial institutions leverage the latest antivirus software to protect customer information and defend against viruses and malware. This software usually runs in the background to detect, isolate and remove malicious software.
- Firewalls: Banks and credit unions employ sophisticated firewalls that act as a shield against cyber attackers. These firewalls monitor incoming and outgoing traffic to prevent unauthorized users from accessing the financial institution's network or computers.
- Encryption: Encryption takes security one step further by scrambling sensitive customer data into a code that only authorized users can read. Financial institutions encrypt your transactions, bank account numbers, passwords and other personal information.
- Fraud monitoring: If you've ever received communications from your bank asking you to confirm a suspicious purchase, that's fraud monitoring. Financial institutions have entire fraud detection departments that monitor customer transactions, using machine learning and behavioral analysis to flag inconsistencies and stop fraud in real time.
- FDIC insurance: Most banks in the U.S. are insured by the FDIC, so your deposit accounts are protected up to $250,000 per depositor, account type and institution. Credit unions are similarly insured through the National Credit Union Administration (NCUA). Verify an institution is covered by looking for the FDIC or NCUA logo on its website or using the FDIC's BankFind tool or the NCUA’s Credit Union Locator.
Expert Tip
By utilizing security measures like encryption, antivirus protection and fraud monitoring, financial institutions can keep unauthorized users from accessing their customer data. This ensures any personal information you share while banking online, such as your account numbers, passwords or Social Security number, doesn't end up in the hands of cyber attackers.
How To Keep Yourself Safe When Online Banking
Banks may employ their own security measures, but you can also take steps to protect yourself. Here are some guidelines for safely banking online:
Use Strong Passwords to Protect Your Devices
Ensure any electronic devices you use to connect to the internet, including smartphones, computers and tablets, are password protected.
Simple password protection isn’t sufficient, however. It takes hackers less than one second to crack the world's top 20 most common online passwords, according to password management company NordPass. What's worse, if you use the same password for everything, one password leak can put all your accounts at risk.
Building a strong password goes beyond avoiding popular choices like "password" and "123456." The U.S. Cybersecurity and Infrastructure Security Agency (CISA) recommends you use passwords that are:
- At least 16 characters long
- Random and include mixed-case letters, numbers and special characters
- Unique to each account you use
You can use a password manager to create and securely store all your passwords.
Set Up Multi-Factor Authentication
Most financial institutions allow, and sometimes require, you to set up multi-factor authentication (MFA) to log into your account. MFA makes you prove your identity in multiple ways, such as through a password and a fingerprint or a password and a recognized device. According to CISA, using MFA makes you 99% less likely to be hacked.
Be Careful When Using Public Wi-Fi
Public Wi-Fi, such as airport, hotel and coffee shop networks, is a lot safer than it used to be thanks to encryption — but you should still exercise caution. Only connect to networks you recognize, and look for "https" at the beginning of the address bar on websites, which indicates the connection is properly encrypted.
To minimize risk, avoid logging into your bank accounts over public Wi-Fi. If you must use a public Wi-Fi network, consider doing so with a virtual private network (VPN).
Only Use Private Devices
Logging into your bank accounts on a public device such as a library or school computer leaves you at risk. Even if you remember to log out of all your accounts and clear your browser history, malware such as keyloggers can track your keystrokes and harvest your account information.
Keep Your Antivirus Software Updated
Most computer and mobile phone operating systems now have native antivirus software that runs by default. Make sure to regularly update your operating system and apps to keep your anti virus software up to date.
Look Out for Phishing Scams
Phishing scams involve sending emails, phone calls and texts that appear to be from a reputable organization, such as your bank, to get you to reveal account numbers, passwords or other personal information. These scams have become the most frequently reported internet crime, according to the FBI's most recent Internet Crime Report.
To avoid falling victim to a phishing scam, follow this guidance from the Federal Trade Commission (FTC):
- If you receive an unsolicited email, phone call or text from your financial institution, don't offer any personal information.
- Contact your bank or credit union directly to confirm the communication you received is legitimate.
- Don't provide personal information such as account numbers or passwords over the phone or via email.
- Avoid clicking links in emails and type the website directly into your browser instead. Scammers may use links and websites that look similar to ones you've used before to capture your information.
Monitor Your Account for Fraudulent Activity
You can do your own fraud monitoring by reviewing your account transactions regularly. Financial institutions often recommend checking your bank accounts at least once or twice a week. If you spot a fraudulent transaction, call your bank immediately.
The Benefits and Risks of Online Banking
Online banking has come a long way in terms of both safety and satisfaction. The American Bankers Association survey mentioned above found that 96% of Americans are happy with their bank's digital experience. However, online banking does have its downsides.
Advantages
- 24/7 access to your accounts
- Easier to monitor transactions regularly
- Mobile apps let you access your accounts from anywhere
- Can help the unbanked gain access to financial services
- Online-only banks may charge lower fees and offer better rates
Disadvantages
- Cyber attackers can steal your username and password and access your accounts
- Data breaches can leak sensitive personal information
- Websites and mobile apps may be down temporarily when you need to use them
- Some online banks may have limited ATM availability
- Limited contact or relationship with a bank representative
Bottom Line: How Safe Is Online Banking?
Financial institutions employ advanced security measures that are constantly evolving. Today’s online banking portals and mobile apps are likely some of the most secure you'll encounter.
"Banks have made significant progress in protecting themselves and their customers from being hacked," says Paul Benda, executive vice president for risk, fraud and cybersecurity at the American Bankers Association, in a recent U.S. Senate Committee hearing. Industry analysis shows that financial services accounted for 10% of ransomware attacks during Q2 of 2024.
At the same time, Benda warns that scammers are also evolving. "Unfortunately, bank customer losses from scams and fraud have been increasing significantly." He explains that impersonation scams, in which a scammer convinces consumers to give up personal information by impersonating an institution or person they trust, are largely to blame.
Banks will continue to protect against security threats, but you should also protect yourself. You can stay safe while banking online by only accessing your accounts on private devices and networks, using strong passwords and MFA, and never giving out personal information over the phone or email.
