In 2004, America’s Cyber Defense Agency declared October Cybersecurity Awareness Month. The intention was to raise awareness around the importance of cybersecurity. Twenty years later, cyber threats continue to evolve, and protecting your online banking activities has never been more important. The convenience of managing your money online is accompanied by significant risks, but understanding those risks—and how to counter them—can help you stay secure. October 2024 is a good time to revisit the steps we can all take to safeguard our financial information.

Common cyber threats in online banking

• Phishing scams. Cybercriminals may try to trick you into revealing sensitive information, like your bank login details, through fake emails or text messages that appear to be from your bank. Always verify the sender before clicking on links.
• Malware and ransomware. Malicious software can infect your devices, allowing hackers to steal sensitive data or lock you out until a ransom is paid. Protect your devices by installing reputable antivirus software.
• Data breaches. Large-scale data breaches at financial institutions can expose customer data to hackers. You personally cannot prevent breaches, but you can safeguard yourself by using secure passwords and monitoring your accounts for unusual activity.
• Account takeovers. If a hacker gains access to your account through stolen or weak passwords, they can drain funds or make unauthorized transactions. This makes it critical to stay on top of your account security.

How to protect yourself in online banking

• Use strong, unique passwords. Make sure your bank account password is complex and not reused across multiple sites. A password manager can help you generate and store strong passwords.
• Enable multi-factor authentication (MFA). Whenever possible, set up MFA for your bank accounts. This adds an additional security layer, such as a one-time code sent to your phone or biometric authentication, like a fingerprint.
• Be skeptical of communications. Never provide personal information in response to emails or messages claiming to be your bank, especially if they are unexpected or unusual. When in doubt, contact your bank directly through their official website or app.
• Keep your devices updated. Regular updates to your operating system and apps provide vital security patches to protect against known vulnerabilities.
• Monitor your accounts regularly. Frequently check your bank accounts for unauthorized transactions. Early detection can help prevent significant losses.
• Avoid public Wi-Fi. Never access your online bank account over public Wi-Fi, which can be insecure and easily intercepted by cybercriminals. If necessary, use a VPN for added protection.

Why banks have strong security measures

Many consumers wonder why setting up or managing accounts online can be complex. Financial institutions implement strict security measures to comply with consumer protection laws and safeguard against evolving cyber threats. These security features, like identity verification and transaction monitoring, are designed to prevent fraud and protect personal information.

Emerging technologies in banking security

Banks continue to adopt new technologies like blockchain and biometric authentication to improve security. These tools offer promising enhancements, but consumers are wise to stay informed and vigilant about the changing landscape of cyber threats.

Staying safe from cyber threats in online banking requires a proactive approach. By following simple security practices like using strong passwords, enabling MFA, and staying alert to phishing scams, you can protect your financial information and enjoy the convenience of managing your money online.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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The Federal Deposit Insurance Corporation (FDIC) recently updated a study of access to banking products among American consumers. The news was largely positive. The percentage of households without access to at least one bank account has reached an all-time low.

While greater access to banking is a favorable trend, the study was also a reminder that some households remain outside of the banking system. This leaves them at a financial disadvantage to households with regular access to banking products.

Tracking the unbanked population

The FDIC National Survey of Unbanked and Underbanked Households is conducted every other year since 2009. The FDIC works with the Census Bureau to measure the use of banking products throughout the U.S. population. The goal is to promote access to safe and affordable banking products for all Americans.

The recently-released report is based on a survey of 30,000 households conducted in 2021. It measures how many of those households have access to bank accounts and how they use those accounts.

In addition, the survey looks at the use of alternatives to bank accounts, such as money orders, prepaid cards, payday lenders and online payment services.

Besides measuring trends for the population overall, the study provides insights on how demographic characteristics such as income, race and ethnic identity correlate with use of banking services.

Trends in the unbanked population over time

The study defines “unbanked” consumers as those living in a household where no one has a bank account. The following graph shows the trend in the percentage of the population defined as unbanked since the study was first conducted in 2009:

Because this graph is charting the percentage of households that don’t have access to banking, the lower the number the better. In the first survey, 7.6% of the population was defined as unbanked. After rising to a high of 8.2% in the 2011 survey, the percentage of unbanked households has fallen steadily since.

The improvement from the highest unbanked rate set in 2011 to the new low set in the 2021 survey represents roughly 5 million more households that now have access to banking. There remain an estimated 5.9 million U.S. households that are unbanked, compared with a total of 126.6 million households that have access to a bank account.

Why access to banking matters

It’s good for the banking industry if more people open bank accounts, but why should this matter to consumers?

The FDIC tracks this information because it considers it a matter of public policy to promote the use of banking services. The reason is that these services can provide consumers with safe and cost-effective ways of handling their finances.

How consumers can benefit from using banking services

Access to cost-effective payment means

Consumers need ways of making and receiving payments. Banks offer direct deposits from employers and other income sources into accounts. They also offer ways of making payments that include checks, debit cards and electronic transfers.

The cost of services varies from bank to bank, but in many cases can be obtained at no cost. Free checking accounts are easily available, and many process routine transactions at no charge. As long as customers avoid overdrafts and using ATMs that charge transaction fees, they can make and receive payments with little or no cost.

Compare this to some of the alternatives identified by the FDIC report. Check cashing services, prepaid cards, money orders and money transfer services are other ways people can make and receive payments. All typically involve sizeable fees. Those fees represent an added cost to every payment made, and a reduction of every payment received.

Security

Banks give people a safe place to put their money. Not only is a bank account safer than carrying cash around or keeping it at home, but deposit accounts at banks and credit unions are federally insured for up to $250,000 per depositor.

Availability of savings vehicles

Besides giving people a safe place to keep their money, banks offer deposit accounts that can make it easier to budget and build savings.

Keeping money in separate checking and savings accounts can help a person make some money available for spending while setting other money aside for future needs.

Getting into the habit of saving is one way to start working towards financial goals rather than simply living paycheck to paycheck.

Access to credit

Having a relationship with a bank can help consumers get access to relatively low-cost credit products like credit cards and loans. These bank products are typically much less expensive than non-bank alternatives like rent-to-own programs, payday lenders, pawn shops, tax refund anticipation loans or auto title loans.

The FDIC study found that using expensive credit alternatives is more than twice as common among unbanked households as among those with bank accounts.

Digital banking services

Why have so many more households gained access to banking over the past decade?

The growth of online and mobile banking appears to be the reason.

During the last four years, the percentage of bank customers who access their accounts primarily online or through their mobile devices has risen from 52.1% to 65.5%. Meanwhile, the percentage of customers who primarily access their accounts at physical locations like bank branches or ATMs has dropped from 44.3% to 31%.

This transition away from dependence on physical locations is important because some rural and inner-city areas are underserved by banking locations. Also, the number of bank branches has declined by 15% over the past ten years. Without digital banking, it’s possible that access to banking would have dwindled even further.

Online bank accounts typically have lower fees and minimums than traditional, branch-based accounts. This lowers the banking barrier for people with less money.

The FDIC’s report is a reminder that using a bank account can be a cheaper and more secure way to handle your finances than many non-bank alternatives. The report also shows that access to banking has improved over the past decade, making this a good time for anyone still without a bank account to take a fresh look at the possibilities.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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The most obvious advantages of an online bank account is convenience. You can manage your money in moments from any device, wherever you are, 24 hours a day, 365 days a year. No more finding time to visit a bank branch during opening hours.

There are other, less obvious advantages. Most importantly, many online accounts often offer lower (or zero) banking fees compared to traditional banks. Also, you may find better yields on your balances in checking and savings accounts.

For some people the disadvantages outweigh the advantages of online banking. There are no face-to-face encounters with their bank staff. A familiarity with technology is required. Perhaps there are security concerns over keeping money in a virtual environment.

Online banking versus mobile banking

This article treats mobile banking (accessing your account using a smartphone or other mobile device) and online banking as the same thing, even if they are considered to be different technologies. Both require internet access.

• Mobile banking customers access their accounts via an app on a portable device (smartphone or tablet)
• Online banking customers access their accounts via a browser on any device (desktop, laptop, smartphone, tablet)

The Federal Deposit Insurance Corporation (FDIC) reports in a survey updated at the end of 2021, ” … mobile banking as a primary method of account access continued to increase sharply.” It says that usage grew to 34% in 2019 from 9.5% in 2015. By 2019, the FDIC says mobile banking had overtaken online banking as “the most prevalent primary method.”

Meanwhile, online banking (as defined by the FDIC) had declined over that period as the primary method of account access. It fell to 22.8% in 2019, compared with 36.9% in 2015.

However, mobile and online banking may be grouped together as they both involve self-management of accounts via the internet. If you add the FDIC’s 2019 figures for mobile and online banking together, they show most Americans now choose those one of these technologies as the primary way they access their accounts.

Perhaps the most telling number in the FDIC’s data is that, in 2019, only 21% of people used bank tellers as their primary method of accessing their bank accounts.

What segment of the population banks online?

There are no great surprises when you look at who uses online and mobile banking. Age may be the biggest determinant of who appreciates the advantages of online banking and who doesn’t.

Statista reports: “Approximately 63% of banked households whose reference person was between 15 and 24 years old were using mobile banking as their primary method to access bank accounts, compared to only 8% of households aged 65 years and older.” A chart showing the ages of users shows a strong correlation between how old someone is and the likelihood of their adopting mobile banking.

Convenience advantages of an online bank account

Time-saving is arguably the most important of all the advantages of an online bank account. In today’s frenetic world, who has time to visit a branch to withdraw and deposit funds, apply for a loan or mortgage or do any of the other things that 25 years ago used to be done in on bank premises?

Today’s online banking services allow you to do all those things anytime and any place. Using simple, intuitive interfaces on websites and mobile apps, you can manage your finances when you’re at work, on a road trip, sitting in your backyard or sunning yourself on a Mediterranean beach. The only constraint is the availability of Wi-Fi or a cellphone signal.

You have to be aware of some basic security issues but, for digital natives (young people who’ve never known a world without at least personal computers), these are generally second nature.

That’s almost certainly why millennials and their succeeding generations embrace online banking while many older people worry about security. They know they can make their banking secure, even if some feel out of their depth when people use jargon terms like virtual private network (VPN), phishing and hacking.

Financial advantages of an online bank account

The running costs of a traditional bank are high. Brick-and-mortar branches require massive investments in real estate and ongoing costs for staff, utilities, property taxes, building maintenance, local IT provision … the list is endless.

An online-only banking operation has no need for prestigious offices and branches. It can start operations in a cheap business park anywhere in the country. It needs way fewer staff. Its main investment is in building and maintaining its technologies, not its bricks and mortar properties. Online banks require strong finance, marketing, customer support and operations teams. but it have reduced outgoings compared to a traditional bank.

What does an online bank do with all those operational savings? It allows better deals for customers through lower or zero banking fees and higher checking and savings account yields.

What to look for in an online bank

Reading the small print about fees and yields is essential when shopping around for any type of new bank account. In particular, check whether those yield and fee deals are tied to minimum balance levels.

Some online banks not not charge ATM fees but others restrict free use to ATMs in their network. If you choose an online bank that charges for out-of-network ATMs, make sure there are in-network ones near to where you spend most of your time.

Ideally, balances and savings should be protected against the bank going under by Federal Deposit Insurance Corporation (FDIC) insurance. Reputable banks are pretty much always FDIC insured. That means each depositor gets up to $250,000 back if their bank fails. The FDIC says, “Banks that are FDIC-insured must indicate that they have FDIC insurance in advertisements and at teller windows.” Just check your candidate online banks’ websites.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Millions of Americans already bank online; the lower the age, the higher the percentage. A 2011 survey reported that 61% of 18 to 29 year olds bank online, and 57% of Americans 55 and older say they prefer online banking to in-person banking. The numbers grow in leaps and bounds every year.

It stands to reason, then, that if a customer can conduct most or all of his banking transactions using a smart phone or computer along with standard tools of the trade such as debit cards and ATMs, a bank’s physical presence is an obsolete requirement.

Furthermore, some online banks offer distinct advantages over their traditional competitors.

EDITOR’S NOTE: The offers mentioned in this article have expired and are no longer available

1. Rates and fees

EDITOR’S NOTE: Rates and Fees mentioned in this article have expired and are no longer available

First and foremost, online banks offer interest rates that are exponentially higher than rates offered by traditional banks. For example, at Wells Fargo, a basic Ways 2 Save savings account earns a microscopic 0.01% and is subject to a $5 maintenance fee unless you maintain a minimum daily balance of $300. You can squeak out a little more – 0.03% – from their Money Market account, but it’s subject to a $10 monthly fee unless you maintain $3,500 in the account. The High Yield Savings nudges your earnings up to 0.05% but only if your balance is $25,000 or more. Wells Fargo savings rates can be as high as 0.10% if you meet certain requirements, such as linking multiple Wells Fargo products and setting up direct deposit and automatic transfers.

Similarly, Bank of America offers rates between 0.01% and 0.15%, all subject to minimum deposits, minimum daily balances and/or monthly maintenance fees.

By contrast, Ally Bank pays 0.87% – that’s 87 times more – on a basic savings account with no monthly maintenance fee or minimum balance. American Express pays 0.85%, also with no fees or minimums. If you dislike having to jump through hoops – like setting up transfers or direct deposits, or maintaining and linking multiple accounts and products – or you’re unable or unwilling to maintain a large balance to avoid fees, an online bank will be a much nicer experience.

2. Security

Back in the olden days (say around 1999, customers had concerns about the security of banking online and were less likely to trust the process than they are today. Security remains, of course, of paramount importance. Software and encryption technology are improved every year and online banking is very safe.

Even if you keep accounts at brick-and-mortar banks, your financial information is stored digitally and is just as vulnerable to – or safe from – hackers as it is at an online bank. No matter where you bank, it’s your responsibility to use common sense and basic prevention measures. Choose a bank that is FDIC-insured, and don’t conduct banking transactions on public internet connections (like coffee shop or library Wi-Fi) or public or shared computers.

3. Convenience

When you want to put money in, all banks allow mailed (check) deposits.  For those who don’t want to bother with an envelope and stamp, most banks now offer electronic deposits. Using your smart phone or computer and scanner, you can deposit funds into your account by uploading photos of the front and back of the check. Whether making deposits during the day or outside of business hours, you never have to leave your home or office.

When it’s time to take money out, checks and debit cards work the same for online banks as they do for traditional ones. For cash withdrawals, you need only find out what ATMs the online bank gives you access to. Many also offer reimbursement of other banks’ ATM fees.

The downside to online banking

One main advantage that brick-and-mortar banks retain is the ability to accept cash deposits. You can’t mail cash, nor can you deposit it by taking a photo (obviously), so if you earn your money in cash or run a business that requires regular cash deposits, you might need to maintain a deposit account at a traditional bank.

The bottom line

Although some traditionalists say that a relationship with a bank is hard or impossible to cultivate digitally, I argue that for many consumers this relationship doesn’t really exist. I certainly had no advantage at my brick-and-mortar bank when it came time to seek a mortgage, and in fact got a better offer from another lender. The same is true for my car loan.

If you already conduct a large portion of your financial transactions online, you have little or nothing to lose in trying an online bank. And if you’re building a liquid emergency fund, there’s certainly no reason to take a lower interest rate on your money.

The post 3 Reasons Online Banks are Better Than Brick-and-Mortar Banks (and One Reason They’re Not) appeared first on Credit Sesame.