Are online banks safe?
Online banks frequently pay much higher interest rates than other banks, which is probably where some of the concern comes from. After all, we’ve all heard the phrase “if it sounds too good to be true, it probably is”. But 4-5% interest is not “too good to be true”. To put it in perspective, US Treasury Bills are also at around 5% right now. 4-5% is a whole lot better than point two percent interest though, which is what some of the ’standard’ banks are offering, if they pay interest at all. But if you’re feeling nervous about online banking, here are some things to keep in mind.
All banks, including the ones at the corner grocer, store their account information on computers. All banks transfer funds electronically. If you go into any bank in the US and demand many thousands of dollars in cash, they won’t give it to you. (You’ll have to take a check or electronic transfer instead, and fill out a disclosure form saying why you’re withdrawing the money.) All banks are susceptible to temporary outages due to major disasters (such as hurricanes, earthquakes, etc.) All US banks have to collect a lot of personally identifying information now (due to the Patriot Act).
All banks (or at least all US banks I’d ever consider dealing with) are FDIC insured. All banks have customer service representatives to help you. Most banks of all types allow you to view your account information online. Most banks can be accessed from multiple locations. There are a few precautions you should take if you do online banking — just like there are precautions you should take if you do in-person banking. All banks will tell you to avoid giving others access to your account information. All banks could be hacked. All banks take measures to avoid being hacked. Physical banks can be robbed in person. Online banks can be robbed from a distance. Both kinds have security in place to prevent this.
In short, there are very little real differences between the two types of banks, at least not as far as the safety of your money is concerned. They both seem equally safe to me. You just make more money at one type than the other.
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