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- An online bank is an institution that operates primarily or only online.
- Your money is safe in an online bank as long as the business is federally insured by the FDIC.
- Online banks can afford to pay higher rates and charge lower fees.
- See Insider’s Picks for Top Online Banks »
What is online banking?
Online banking
are institutions that work primarily or exclusively online.
Many physical banks (that is, banks with physical branches that you can visit) allow you to access your accounts through their websites or mobile apps, but with online banking it’s all done. in line. Some online banks have a few physical locations, but most of them still operate digitally.
Are online banking safe?
In short, yes, online banking is safe.
The most important part of shopping for a bank is choosing one that is insured by the FDIC, or Federal Deposit Insurance Corporation. (If you use a credit union, it must be insured by the NCUA or National Credit Union Administration.)
A bank should advertise it is FDIC insured on its website, or you can search for an institution on the FDIC website.
FDIC insurance works the same way as other types of insurance. If you have purchased home tenants insurance and your home is damaged in a natural disaster, your insurance will cover the costs of the damage up to a certain amount. If your bank has FDIC insurance and closes, the FDIC will give you the money you have stored in the account, up to $ 250,000 for an individual account and $ 500,000 for a joint account.
You may be considering using an online banking platform, such as Wealthfront or Chime. Technically, these companies are not banks, but they are backed by banks that provide FDIC insurance, so your money is always safe.
When it comes to security, online banks are just as secure as physical banks. But you should apply the same security measures you would use with any other sensitive information you access online.
The advantages and disadvantages of online banking
If you want to get higher rates and pay lower fees, you might like online banking. But if you like the convenience of walking into a physical branch or need to deposit money, you might be better off going with a traditional bank.
