Online banks are safe to use as long as they’re federally insured and you take some simple steps to protect your information. With the right security measures, online banks can open up the opportunity for you to earn some of the highest rates on the market.

What is an online bank?

An online bank is a bank that offers services primarily through the internet. Without a brick-and-mortar presence, online banks can save on the traditional expenses that go along with operating a branch. This allows online banks to offer competitive annual percentage yields.

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

See Bankrate’s picks for the Best Online Banks of 2022.

Are online banks safe to use?

Yes, online banks are safe. As long as an online bank is insured by the Federal Deposit Insurance Corp., it will offer the same coverage as the FDIC-insured bank down the street. FDIC covers up to $250,000 per account for each individual customer. Confirm whether a bank is FDIC insured by using the FDIC’s BankFind tool, which permits searches by bank name or web address.

An online bank with a high yield might be related to a familiar traditional bank. In some cases, an online bank division of a brick-and-mortar bank may share the same insurance with it. Citizens Access or Investors eAccess are two examples:

  • Citizens Access is an online bank that’s a division of Citizens Bank. The two are treated as the same entity, under the same FDIC certificate, when calculating FDIC insurance.
  • Investors eAccess is an online bank, and is a trade name of Investors Bank. Deposits at Investors eAccess are deposits of Investors Bank for FDIC purposes.

Since these banks are related to other entities, the FDIC insurance may be limited to $250,000. Check with your bank and use the FDIC’s EDIE Estimator to determine whether all your money is all covered under FDIC insurance.

Opening an account online safely

To open a bank account online, you’ll need a computer, secure internet connection and personal information prepared, such as a Social Security number and a government-issued ID. The process of opening an account online is similar to opening one at a branch, but take some precautions to ensure personal information is protected from cyberattacks.

Make sure the network being used to connect to the internet is secure. Public Wi-Fi networks should be avoided. One way to ensure your connection is secure is by using a VPN.

It’s also important to 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

Whether it’s using an online bank or online banking at a traditional bank, adhering to some best practices can keep your money safe:

  • Type in the bank’s website into your browser and don’t use a link that was emailed or received via a text message, which can help you avoid phishing scams.
  • Make sure the bank’s website is using an HTTPS web address before logging in.
  • Change your password regularly and don’t use it anywhere else.
  • 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.
  • Set for text message alerts to advise you of unauthorized transactions or withdrawals.
  • Consider a virtual private network, a service that encrypts your internet connection to keep it safe. Use a VPN on your laptop, tablet and smartphone.
  • See if your bank allows you to use a verbal password to further protect your account.
  • Consider downloading identity theft-protection software. These services can often come with several protective measures packaged into one, including a VPN and password monitoring.

Pros and cons of online banks


  • Online banks typically offer some of the highest APYs nationwide.
  • Many online accounts offer fee-free access to a large ATM network, making it more convenient to find free ATMs than going to your brick-and-mortar bank’s ATM.
  • Online banks typically charge no maintenance fees and are easily found.
  • It can be easier to access and manage your accounts by simply going online or contacting a bank representative virtually.


  • Consumers who appreciate face-to-face interactions with a bank may not be good candidates for an online-only bank, since they don’t usually operate branches. A compromise could be to keep both a savings account at a brick-and-mortar bank and a high-yield savings account at an online bank to have the best of both worlds.
  • Online banks may have fewer options and less variety of account types than traditional banks.
  • It can be more difficult to deposit cash into an online bank account. Customers may need to deposit the cash into a separate account first and then transfer it into the online bank account.

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 add convenience and extra perks to managing finances.

Some online banks provide high-yield checking accounts, which pay competitive yields and may include free checks, access to a large ATM network and no maintenance fees.

An online bank is a smart place for an emergency fund, especially if you’re keen on keeping your rainy-day fund separate from your spending money. Not seeing that money in the same place as your checking account can help deter you from transferring or withdrawing it.

FDIC-insured online banks pay competitive APYs and keep your money safe as long as you follow FDIC limits and guidelines.

Bottom line

An online bank is a great option for consumers looking to earn a competitive yield and be charged fewer monthly fees. Federally backed online bank accounts are safe to use and are insured just the same as brick-and-mortar banks.

Still, it’s always good to have some caution to protect your personal information. Consider downloading antivirus or identity theft-protection software, and make sure to keep your account details — especially passwords — private.