What the Tech: Online banks

LANSING, Mich. (WILX) - Online banks, and what you should know before putting your money into one. Now that two large banks have collapsed, many people are wondering if their savings are safe or whether they should plan to put the money somewhere else.

In recent years, billions of dollars have been put into savings accounts in online banks, banks with no physical locations.

Online banks are about clicks, rather than bricks. Banks with no physical location. No branches, and no bank tellers. Everything you do with your account is online. They’re quite different.

“You don’t get as much customer service. You don’t get all the products such as home loans, and car refinancing that a traditional bank may offer,” says Patrick Di Cesare, a financial educational advisor. “But in return, you get much lower fees and savings accounts that may offer much higher interest rates than you would get with a traditional bank.”

Di Cesare says that traditional banks offer around .01% interest on savings accounts. Some Online banks offer 4% interest and higher. But are they safe?

Whether it be a traditional or online bank, make sure you look for Federal Deposit Insurance Corporation (FDIC) insurance. That means if the bank did go under the federal government would back it up to $250,000.

What about money kept in cash apps such as Venmo and Paypal?

“Venmo is not FDIC insured neither is PayPal,” Di Cesare explains. “So, if you’re keeping large sums of money in there, and in the off-chance one of those companies goes under you would lose your entire balance so if you’re making payments to people, maybe have enough in there for that but other than that get your money out of Venmo or PayPal.”

Whether you’re using an online bank or a traditional brick-and-mortar bank, it’s critical to protect your account. Use a strong password you’re not using somewhere else. Don’t log in to do online banking on a public Wi-Fi network, use a virtual private network (VPN) instead.

The biggest risk to your life savings isn’t a bank collapse, it’s someone getting access to your account.

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