Are Online Banks Secure? What You Need to Know

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Nobody wants to be a victim, yet every year, 7-10% of adult Americans are victims of identity theft. And in 2020, the Federal Trade Commission (FTC) received 4.8 million identity theft and fraud reports.

Because of this, you may be uneasy about conducting financial transactions online. And, while you may understand the advantages of online banks (better interest earnings, lower fees, no waiting in line), you may also be concerned about the risks.

We understand this reasoning, but it reveals a misunderstanding of how financial data works.

In this post, we’ll dispel common myths about financial data and share tips on how to stay secure.

First, Your Data is Already Online

On September 7, 2017, Equifax made a shocking announcement.

A team of hackers exploited a flaw in their system and stole data from 147 million Americans. In other words, 45 percent of the entire U.S. adult population had their data compromised.

This wasn’t the first time Americans learned about a massive data breach. What made this breach different, however, was its depth.

Social security numbers, birth dates, addresses, and driver’s license numbers – every significant piece of a consumer’s identifying information was in the hands of unknown criminals.

Whether or not you bank traditional or online, your financial data is still online.

Regardless of whether victims of the Equifax data breach banked online, their financial data was still stored online and therefore was vulnerable.

What does this mean for you?

If you were among these victims, it does not matter whether or not you conducted financial activity online. Indeed, if you have any sort of credit history (student loan, auto loan, or even child support), your data is already online.

Likewise, whether or not you bank traditional or online, your financial data is still online.

The era of paper-based data storage is over. Any institution that has access to your financial information has stored it online already.

Offline Does Not Mean Secure

Many people assume that keeping their information offline makes them more secure.

Unfortunately, this is incorrect.

Identity theft crimes can and do still occur offline. Common occurrences include fake phone calls from the IRS, “shoulder surfing” while victims enter a PIN or password in public, skimming credit cards at a restaurant, or simply stealing a purse or wallet.

Moreover, criminals are not above stealing mail directly from a mailbox or dumpster diving for sensitive information.

While basic in nature, these identity theft crimes are effective and do not require elaborate hacking schemes. Whether online or offline, all data has the potential of being stolen.

How Online Banks Keep Your Data Secure

Instead of merely digitizing archaic storage methods, online banks are born digital.

Because they understand that they are targets for hackers, online banks are built to withstand attacks. Furthermore, online banks’ small size makes them agile and quick to adopt new technologies that enhance security.

Since online banks are 100% digital, they also have a smaller paper trail than traditional banks. This means less unnecessary exposure to sensitive information. Paperless statements, electronic bill payments, and remote deposits are sent and received through encrypted connections. This prevents unauthorized access to your information.

Furthermore, online banks regularly monitor accounts for potential fraud. By sending instant updates to your mobile devices, online banks can easily catch and thwart fraud attempts.

Data security employee at work

How to Keep Your Own Data Secure

Cyber security is a two-way street. While it’s important to ensure that the institutions that store your data have secure practices, it’s equally important to ensure you also have secure methods in place.

Below, we’ve listed simple habits to help keep your financial data secure:

  1. Choose a bank that has the highest level of security.

    This goes beyond just a username and password. You want to ensure that your bank has multi-factor authentication, 128-bit encryption, paperless statements, and instant text alerts in place.

  2. Monitor your credit regularly.

    As an American consumer, you are entitled to a free copy of your credit report every year. However, in addition to your annual credit report, it’s important to utilize a credit monitoring service. By taking advantage of instant text and email alerts, you can immediately catch any fraud attempts.

    You should also routinely check your bank and credit card accounts for potential suspicious activity. This can be time-consuming, but if you use an account aggregator tool, you can get a holistic view of all your accounts in one place, making it easy to review all recent transactions.

  3. Place a security freeze on your credit.

    If you are not planning on opening a new account soon, placing a credit freeze at all three credit bureaus will prevent unauthorized access to your data. Once the freeze is in place, only existing creditors and certain government agencies can access your financial information.

    If you need to open a new account, you can temporarily lift the freeze with each credit bureau.

  4. Treat your phone like a computer.

    Today, smartphones can contain more sensitive information about their owners than personal computers. With this in mind, it’s important to use common sense when accessing sensitive information via your mobile devices.

    Avoid using public Wi-Fi to log in your accounts. If you must use public wi-fi, use a virtual private network (VPN) to share data securely.

    Install trusted anti-virus software and perform regular sweeps. Don’t download random apps – they can contain malware.

    Be wary of clicking hyperlinks, even if they’re sent through friends. Many hackers have used popular online quizzes to gain unauthorized access to social media accounts.

  5. Change passwords regularly.

    In the event that a hacker does steal your password, regular changes will prevent continued access to your account.

    Be sure to create a strong and unique password for each account. Instead of trying to remember each password, use a password manager to store them.

  6. Use two-factor authentication wherever you can.

    Two-factor authentication adds an extra layer of security to prevent unauthorized access to your account.

    For example, when logging into your email account, an email service provider that has two-factor authentication will typically send a text message containing a unique code. If you enter the unique code before its expiration, you will be granted access to your account.

    Many companies also offer biometric authentication for double protection. Register your voice, face, or fingerprint in your mobile apps, and hackers won’t be able to sneak past.

Key Takeaways

Regardless of whether you bank traditional or online, your financial data is already stored online.

Because online banks are born digital, they are better equipped to withstand cyber-attacks. Their small size makes them agile, which means they can quickly adopt new technologies to advance security. Furthermore, because they have smaller paper trails, they allow less unnecessary exposure of sensitive information.

Are Online Banks Secure? What You Need to Know

This blog post was published by Axos Bank on October 29, 2018 and last updated on February 02, 2022.

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