Are Digital Banks Safe? [Complete Detailed Guide]

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Digital banks are simply online-based traditional brick-and-mortar banks. Digital, or virtual, banks provide the same services as physical banks do. These include savings accounts, checking accounts, debit cards, loans, and mortgages.

While digital banking may seem like a new trend that will cut into physical bank profits – it is nothing of the sort. Digital banking actually began in the 1980s with telephone-based transactions.

Digital banks are able to offer lower fees and interest rates on loans because their operating costs are low. Digital bank transactions are often subject to fewer fees than physical retail banks, making them cheaper for consumers. For example, some digital banks charge no fees on ATMs.

The reasons for customers to choose a digital bank over a traditional one are two-fold. First, the convenience. Digital banking allows customers to carry out transactions from their own homes, without having to physically go to a physical bank branch. In addition, customers can access their digital accounts from anywhere in the world, on any internet-connected device.

Second, some customers may prefer to use a digital bank because they do not have a physical branch near them. Some customers simply like the idea of dealing with an online-only virtual bank instead of a traditional brick-and-mortar one.

Advantages of Digital Bank

The following are the advantages of Digital Banks:

Fast and Easy to Use

A digital bank’s website is easy to use, making it a breeze for customers to carry out transactions.

Lower fees

Like physical banks, some digital banks charge small fees for services such as ATM withdrawals and debit cards. However, most digital banks charge lower rates than traditional brick-and-mortar ones. Furthermore, many digital banks offer free checking and savings accounts, while their physical counterparts charge fees for such services.

Unlimited options

Digital banks allow customers to access a wider range of financial products, including low-interest credit cards. This is because digital banks can partner with other financial institutions to offer credit card transactions and loans.

Lower Interest Rates

Digital bank customers can carry out most transactions online. Because the digital bank does not have to pay for extra expenses such as staffing costs, it is able to offer customers lower interest rates on loans. Finally, due to their lower operating costs, digital banks are often able to offer higher deposit interest rates than physical ones.

Customer Experience

The process for opening a new bank account with a traditional brick-and-mortar bank is lengthy. This problem is solved by digital banking.

Millennials and digital natives

Digital banks tend to attract younger customers who prefer doing things online. Millennials and members of Generation Z were the first to adopt digital banking, as they grew up in a world where computers and smartphones were an everyday part of life. However, all age groups are able to benefit from digital banking.

Disadvantages Of Digital Banking

The following are the disadvantages of Digital Banks:

Lack of Personal Touch

Digital banks may lack the personal touch that physical bank branches provide. The online-only virtual bank cannot answer basic questions, such as how much money is in a savings account, in person. This leaves customers with no other option than to contact digital call centers and wait on hold for hours at a time.

Security Concerns

Digital bank accounts are not as secure as physical ones. Digital banking requires customers to rely on passwords and other electronic security measures, instead of tangible ones like locks.

Limited Accessibility

Some digital banks only offer online services, which means they do not have physical branches for people who prefer to do their banking in person. Finally, many digital banks are only available in major cities, limiting access to customers who live in more rural areas.

Are Digital Banks Safe?

Yes, but you need to take extra precautions for your safety. Digital banks are becoming more and more popular with consumers around the world. Digital banks are secure and reliable or we need to be more vigilant when we transact with our money via banking transactions.

They all are digitally connected and it is possible that everything in my bank can be hacked by an outsider who may have evil plans on doing me harm. We need to follow every precautionary measure as required. In the end, it is more secure and safe to transact through digital banks for transactions or business-related dealings.

How To Stay Safe Banking Online?

The following measures should be taken when banking online:

Use Dual Passwords

Some customers opt to create two different passwords, one for their email accounts and another for everything else. It may be difficult, but it is not impossible to remember two separate passwords. This doubles security measures.

Avoid Free Wi-Fi

Avoid free Wi-Fi networks when logging into your online bank account. It is never a good idea to access any of your personal information over an unsecured connection. Finally, avoid public devices, such as those commonly found in cafes or libraries.

Do not use the same password

Use the same password for all of your accounts. If someone manages to log in to one account with a weak password, they will have access to all of them.

Unique Password

Do not use passwords that can be easily guessed or found online, such as birthdays and other significant dates.

Use Strong Passwords

It is very important to use strong passwords for your digital bank account. A good password should be at least eight characters long and contain both letters and numbers, as well as symbols such as $, #, and &.

Do Legitimate Research

It is not a good idea to open any account without doing some research first. Take the time to look online for both positive and negative reviews of the bank in question, as well as look at their legal documents such as licenses and permits.

Seek Professional Advice

Before opening an account, always consult a professional like a registered financial advisor or a certified public accountant (CPA). These professionals will be able to help you set up the account and keep it safe.

Never Share Login Information

It is important not to share your login information with anyone, even close friends or family members. Doing so may risk having your information stolen or compromised.

Get a Financial Record Keeper

It is best to get a professional or financially relevant person as your record keepers, such as parents or someone of authority. Keep everyone involved updated on the current password and change it often so no one else can obtain it.

Keep an Eye Out for Fake Emails

Do not open any email from your digital bank that contains links, as this may be a sign of a phishing scam. Legitimate banks will never send out any links in an email and will only ask for passwords and other personal information over the phone or through official correspondence.

Few Digital Banks

Let us look at some of the famous digital banks:

CHIME

This digital bank is run by seven of the largest US banks, including Chase and Citigroup. It only requires that you have an internet connection to set up an account with them. They offer personal accounts as well as business accounts, making it easy for anyone to use their services. You can easily deposit checks through your mobile device or computer without ever having to leave your home.

Bank of Internet

This digital bank has been around for roughly twenty-five years and is known as one of the most secure banks around. Their security measures are up to par with the best in the industry and they offer great rates on savings accounts, certificates of deposit, checking accounts, money market accounts, and more.

Avant

This digital bank has expanded to be available in all fifty states and is known for having some of the highest savings rates around. Their minimum deposit requirement is only $1000 and they offer a mobile app to help you easily manage your money on the go. They also have products such as high yield checking accounts, CDs, and IRAs.

New York Community Bank

This community bank offers to check accounts for individuals as well as small businesses. They also offer savings accounts, money market accounts, and certificates of deposit that can be opened with just $100.

Lake Michigan Credit Union

This credit union is available to residents of Illinois, Indiana, and Michigan. They offer checking accounts with no fees along with free online bill pay. Their savings rates are very competitive and they also offer IRA accounts, certificates of deposit, money market accounts, and more.

Washington Savings Bank

This bank is based out of New York City but offers its services nationwide. They offer checking accounts with no fees and low rates on savings accounts, money market accounts, and CDs. They also give customers access to both personal financial advisors as well as business experts.

Navy Federal Credit Union

This credit union is available to military members, veterans, their family members, or anyone that lives in Virginia or Maryland. They offer checking accounts with no fees along with savings accounts, money market accounts, CDs, and IRAs. They have some of the best CD rates around and their mobile app can help you manage your money on the go.

Bank5 Connect

This bank is available for customers in six New England states. If you are looking for a checking account with no fees, this is the place to go. They also offer low rates on savings accounts, money market accounts, and CDs. Their mobile app makes transferring money to your other accounts very easy and you can easily manage multiple accounts without ever having to leave home.

AARP

This credit union specifically caters to members of the AARP. It only requires that you be fifty-five years or older to join and they offer checking accounts with no fees along with low rates on savings accounts, money market accounts, CDs, and IRAs. They also have some of the highest CD rates available.

The Bottom Line

Despite the convenience that digital banking provides, not everyone feels comfortable with it. For some customers, the traditional brick-and-mortar bank is still the number one choice. However, due to its convenience and lower operating costs, digital banking is quickly becoming a favorite among both consumers and banks.

This debate will continue until someone comes up with a real solution but the important thing is that we are vigilant, patient, and follow instructions given to us by our banks. The answer is yes but you need to be extra-vigilant about your transactions because no one can guarantee that everything will work out just fine. It all depends on how you will use it.

I lead product content strategy for SaltMoney. Additionally, I’m helping our broader team of 4 evolve into a mature content strategy practice with the right documentation and processes to deliver quality work. Prior to Instacart, I was a content strategy lead at Uber Eats and Facebook. Before that, I was a content strategist at SapientNitro, helping major Fortune 500 brands create better, more useful digital content.

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