How Online Banks Work

Online Banking Security

Security is a major concern with online banking. According to the 2010 Global Online Consumer Security Survey by security firm RSA, 86 percent of respondents said they were "very concerned" or "somewhat concerned" about having their personal information stolen or misused while banking online [source: RSA]. Although losses related to online banking fraud have decreased significantly over the past five years, it still costs consumers tens of millions of dollars a year in countries like the U.K. and U.S. [source: Kirk].

Phishing scams are one of the most popular methods of committing online banking fraud. The classic phishing scam consists of an e-mail that looks like it's from your bank, complete with logos and graphics. In the e-mail, your online bank says that your account will be terminated unless you click on a link and confirm your account information and personal information like your date of birth and Social Security number. Criminals can then use this highly sensitive information to access your real bank account or apply for credit cards in your name. Recently, posted an example of a phishing scam that used a phony pop-up window where users are asked to enter their account information [source: Chase].

The best protection against phishing scams is the knowledge that your bank will never e-mail you and request your personal information or account information. They already have that information on file. If you ever receive a questionable e-mail, the best advice is to call your bank's customer service line and see if the message is legit.

Another concern with online banking is the financial integrity of the bank itself. Is this a fly-by-night operation or a stable, well-financed institution? For peace of mind, make sure that you work only with online banks that are insured by the FDIC [source: Bomberger]. The FDIC was established in 1933 to protect depositors in the case of a bank failure. The typical FDIC insurance policy guarantees up to $250,000 in deposits for each individual [source: FDIC].

For lots more information about online banking and Internet security, follow the HowStuffWorks links below.

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  • American Bankers Association. "ABA Survey: Popularity of Online Banking Explodes." September 8, 2011 (Accessed Oct. 28, 2011.)
  • Bomberger, Paul. "Should you bank online?" (Accessed Oct. 28, 2011.)
  • Chase. "Fraudulent Email Examples" (Accessed Oct. 29, 2011.)
  • Christopher, Benjamin. FDIC Division of Research and Statistics. "Recent Developments Affecting Depository Institutions." February 1996 (Accessed Oct. 27, 2011.)
  • FDIC. "When a Bank Fails: Facts for Depositors, Creditors and Borrowers" (Accessed Oct. 28, 2011.)
  • Google Advisor. "Checking Accounts" (Accessed Oct. 29, 2011.)!search&Deposit+Range_D=5000.0&Zipcode_S=15317&si=0&start=1
  • ING Direct. "Person2Person Payment" (Accessed Oct. 27, 2011.)
  • Kirk, Jeremy. IDG News. "Online Banking Fraud Losses Decline in the U.K." October 5, 2011 (Accessed Oct. 28, 2011.)
  • Roberts, Amy. Good Housekeeping. "The Pros and Cons of Online-Only Banks." July 29, 2011 (Accessed Oct. 28, 2011.)
  • RSA Security Inc. "RSA 2010 Global Online Consumer Security Survey." (Accessed Oct. 28, 2011.)