Do Online Banks Offer Financial Security?

Banks that operate entirely online are known for offering perks such as high yields and little-to-no fees. However, some consumers — especially those accustomed to banking in person at a branch — may wonder about the safety of banking online.

Whatever their level of comfort with technology, many consider the security of their funds to be top of mind. In fact, 97% of adults say fraud prevention and security are the most important factors when choosing where to bank, according to a 2025 State of Scams report from fraud prevention platform Alloy. And that concern is understandable, with personal data breaches resulting in losses of $1.45 billion in 2024, per the FBI.

To protect their customers, banks rely on safeguards such as encryption, tokenization, multifactor authentication and mobile banking alerts. With these in place, online banks can offer safe, convenient access to some of the best high-yield savings account rates on the market.

Online banks statistics

Sources: American Bankers Association, Bankrate

What is an online bank — and is online banking safe?

An online bank offers its services primarily through the internet. Without the expenses of operating a brick-and-mortar presence, it can offer competitive annual percentage yields (APYs), usually well above the national average.

Instead of talking to bank tellers and bankers, you communicate with an online bank via phone, email, mobile app or online chat on the bank’s website.

Still, cybercrime is a financial security issue that many consumers are concerned about when debating whether online banking is safe. That can include hackers, identity theft and phishing. To combat this, online banks offer a number of extra security measures to protect your finances and maintain consumer trust.

Common online banking protections include security questions, unusual activity alerts, biometric authentication and multifactor authentication. Banks also rely on encryption and tokenization to safeguard sensitive data during transactions.

Is an online savings account FDIC-insured?

When it comes to the safety of your funds if your bank were to fail, online banks are just as safe as traditional ones — as long as they’re insured by the Federal Deposit Insurance Corp (FDIC). You can confirm a bank is FDIC insured by using the FDIC’s BankFind tool, which allows for searches by bank name or web address.

You may find that an online bank with a high yield might be related to a familiar traditional bank, sharing the same insurance, such as Citizens Access (Citizens Bank) and Bask Bank (Texas Capital Bank). Because these banks are related to other entities, FDIC insurance may be limited to a shared total sum of $250,000 in deposits per account owner (for joint accounts, each person is insured up to $250,000).

Check with your bank and use the FDIC’s BankFind and EDIE Estimator tools to ensure your money is completely covered under FDIC insurance.

How do online banks secure your data?

Online banks secure your data using a number of methods:

• Multifactor authentication: Online banks will require multiple forms of authentication before granting access to your account. This means instead of just using a password, they may also require another type of information, such as a security question, PIN or ATM card number.
• Encryption: Special encryption software secures data to protect personal information and secure online transactions.
• Fraud monitoring and prevention: Online banks typically use special software that monitors your account and is able to detect unusual or fraudulent activity.
• Automatic sign-out: Most online banks will automatically log you out of your account after a certain period of inactivity, so information is not accidentally accessed by the wrong party.

Before opening a new account with an online bank, ask what kind of security measures they employ to protect your data.

Traditional banking vs. online banking: Which is safer?

Some bank accounts come from lesser-known online banks, which can cause people to worry whether an online savings account is FDIC insured. However, both traditional and online banks generally carry FDIC insurance, protecting your funds should the bank fail. As long as there is FDIC protection for your funds, your online bank is just as safe as a traditional bank with the same insurance.

Traditional banks carry the benefit of in-person service, which reduces the exchange of information over the web. Still, many online banks counteract this cyber risk with tools like multifactor authentication and encryption. It is also important to be proactive about your security and employ certain protective measures yourself to ensure your information remains safe while accessing your account online.

Safely opening a bank account online

To open a bank account online, you’ll need a computer or smartphone, a secure internet connection and your personal information. Have items such as a Social Security number on hand to verify your identity.

The process of opening an account online is similar to opening one at a branch, but it’s best to take some precautions to ensure your personal information stays protected from cyber-attacks and other types of banking fraud.

• Make sure the network connected to the internet is secure.
• Avoid public Wi-Fi networks so your data is not exposed to other network users.
• Consider using a virtual private network, or VPN, to help ensure your connection is secure.
• Create a password that’s unique and not easy to guess. Doing so will make it harder for hackers to break into an account and commit identity theft.

Safety precautions when banking online

Once you have safely opened your bank account, it is important to keep it safe during future use. In addition to using secure Wi-Fi, adhering to some best practices can keep your money safe:

• Directly type the bank’s web address into your browser when banking online, rather than using a link that was received via email or text message. This can help you avoid phishing scams.
• Change your password regularly and don’t use it anywhere else. You may also want to see if your bank allows you to use a verbal password for further protection.
• Use multifactor authentication. The two-step process might seem like extra work, but it adds another layer of security, usually in the form of receiving a code via text or an authenticator app.
• Set mobile banking alerts to advise you of unauthorized or suspicious transactions.
• Consider downloading identity theft-protection software, which often comes with several protective measures packaged into one, including a VPN and password monitoring.

Is an online bank right for you?

Going completely online can make some banking services — like depositing cash — more difficult. But having at least part of a banking portfolio with an online bank can provide extra perks such as highly competitive rates and low, or no, fees. 

An online bank can be a good place for building up your emergency fund, especially if you’re keen on keeping your rainy-day fund separate from your spending money. Having your savings and checking accounts at different banks can help you avoid dipping into savings for non-emergencies.

Before opening an online bank account, review the app to see what features and tools it has to offer. Also look into the bank’s customer service offerings. Many online banks offer extended support hours — sometimes even 24/7 phone support.

Bottom line

An online bank is a great option for consumers looking for competitive yields and fewer monthly fees. Federally backed online bank accounts are just as safe as brick-and-mortar ones in the event the bank were to fail. In terms of online safety — use the same safe practices you do elsewhere. Protect your information, and don’t click any suspicious links.