Approximately 72.5 million American households -- 80 percent of the population -- used online banking in 2010 [source: Fiserv]. Internet banking has become an accessible, everyday practice as common as walking into a local branch and speaking to a teller. Unfortunately, financial scams are common, too. In 2009, 11.1 million adults fell victim to identity fraud, up 12 percent from 2008 [source: Javelin]. But are those two figures connected? It's easy to be wary of online banking; the process involves transferring large quantities of our sensitive information over the Internet, after all. With credit card fraud as common as it is, how could banking online be safe?
While it's true that online transactions can lead to credit card fraud and stolen information, most banks do their best to make transmissions secure. Online retailers with poor security and millions of customers are juicy targets for hackers, who can theoretically obtain huge lists of usernames, passwords and corresponding financial information. Thanks to the encryption online banks use, you can mostly rest easy while paying bills online. Keep reading to find out why you should be using online banking -- and what you should watch out for, just in case.
Online Banking Sites
Online banking is an appealing concept: It's accessible anywhere, anytime and using e-billing eliminates the pounds of paper bills mailed to your house every year. That last advantage can actually make online banking more secure than traditional paper banking. Bills frequently list your account number, credit card number or other financial information that would be dangerous in the wrong hands. Without paper statements, only someone with access to your online bank account can access your personal information.
Many Web sites -- banks included -- use a transfer protocol called Hypertext Transfer Protocol Secure, or HTTPS. While we use HTTP on a daily basis to browse the World Wide Web, HTTPS adds a form of security that encrypts data. This security is typically depicted in your Web browser by a lock or key, and any secured URL should begin with "https://" instead of "http://". Next time you log into your online banking account, pay attention to your URL bar. Is the page encrypted? If so, it will be very difficult for anyone to eavesdrop on the connection and hijack your financial data.
Popular online commerce sites like Amazon go to great lengths to secure their information, too, so you should see the same comforting HTTPS protocol while carrying out transactions. But that doesn't mean all online retailers are equally secure.
Banks obviously have to closely safeguard their money; keeping those dollars secure is the only reason they exist. Retailers, though, make a profit by selling products. Whether it's the fault of shoddy security or tenacious hackers, some Web sites have a history of being hacked, resulting in fraudulent transactions for customers. Even major outlets are susceptible: In 2007, TJX, which owns discount retail giants T.J. Maxx and Marshalls, among others, was hacked to the tune of 45.7 million credit card numbers [source: Jewell]. Avoid making purchases on sites that look sketchy, and never fall for e-mail phishing schemes that try to get hold of your personal information.
There's one last precaution you should take when shopping online: Avoid using a debit card whenever possible. It's bad enough when identity thieves obtain your credit card information and make fraudulent purchases. But if they gain access to your debit card number, they could tap directly into your bank account and potentially clear it out. Whether you're using a debit card or credit card on the Internet, take advantage of your bank's online services and account management to monitor your balance. Carefully watching for fraudulent charges will help keep your finances safe, whether you're shopping or managing your money with online banking.
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