From 2FA to deposit protection: Tips for choosing a secure online bank

Online banking has transformed the way we manage our finances, making financial services that were once only available in traditional brick-and-mortar banks accessible to everyone. This has led to the rise of neobanks, which are becoming increasingly popular worldwide. New players are entering the market each month, creating dozens of online banks that offer attractive features and perks to customers and businesses. These banks handle millions of bank accounts and billions of pounds in deposits, making them a significant player in the financial landscape. 

The convenience, speed, and flexibility of online banking are some of the main reasons why we love it. With just a few clicks, we can access our accounts, transfer funds, and even apply for loans. However, with this convenience comes the important question of security. How do we know if our money is safe in an online bank? Given the recent failures of two major institutions, Silicon Valley Bank and Signature Bank, both of which had a decades-long track record, it's worth reviewing the safeguards in place to ensure that your hard-earned savings aren't squandered. 

How can we be sure that our money is safe in an online bank? 

Check for regulatory compliance 

One of the easiest ways to know if your money is safe in an online bank is to check if it is regulated. In the UK, the Financial Conduct Authority (FCA) regulates banks and financial institutions. In the EU, it's the European Banking Authority (EBA). These regulatory bodies ensure that banks operate within strict guidelines and that they are held accountable for their actions. Before opening an account with an online bank, make sure it is registered and regulated by the relevant authorities. 

How to check if a bank is regulated 

1. Visit the FCA or  EBA website: Both of these organisations maintain public databases of financial institutions that are authorised to operate in their respective jurisdictions. 

2.  Using the search function on the FCA or EBA website, look up the bank you are interested in. You can search by the bank's name, registration number, or country of origin. 

3.  Check the bank's authorisation status. This will tell you whether the bank is authorised to operate in the UK or EU, and whether it is subject to regulatory oversight by the FCA or EBA. 

4.  The FCA or EBA website may also provide information on any disciplinary actions or warnings that have been issued against the bank. This can give you an indication of the bank's track record in complying with regulations and addressing any issues that arise. 

5.  Verify the information you find on the FCA or EBA website with other reliable sources, such as the bank's own website or independent news sources. This can help you ensure that the information you are relying on is accurate and up-to-date. 

Look for deposit protection schemes 

In the UK, the Financial Services Compensation Scheme (FSCS) protects deposits up to £85,000 per person, per bank. In the EU, there is the Deposit Guarantee Scheme (DGS), which protects deposits up to €100,000 per person, per bank. These schemes are designed to protect depositors in case of a bank failure. When choosing an online bank, check if it is covered by a deposit protection scheme.  

How to check if your bank is covered by a deposit protection scheme 

1. Check the FCA or EBA website, as mentioned above, and look up for your bank of interest. 

2.  Once you've found the bank you are looking for, check which deposit protection scheme the bank is covered by. 

3.  Verify the information: As with checking the bank's authorisation status, it's important to verify the information you find on the FCA or EBA website with other reliable sources, such as the bank's own website or independent news sources.

Check for strong security measures 

Online banks take security seriously, and they employ various measures to protect your money. Some of the security measures include two-factor authentication, encryption, and biometric authentication. Look for online banks that have strong security measures in place to ensure the safety of your money. 

• Two-factor authentication (2FA): This is a security measure that requires users to provide two forms of identification before being granted access to an online account or system. The two factors typically include something the user knows (like a password) and something the user has (like a mobile device or security token). 

Businesses that handle sensitive information, such as customer data, financial records, or trade secrets, need to ensure that only authorised individuals can access this information. Passwords alone are no longer considered sufficient to protect against cyber threats, as they can be easily hacked or stolen. By implementing 2FA, businesses can add an extra layer of security that requires users to provide a second form of identification, such as a mobile device or security token, in addition to their password. This can help prevent unauthorised access and reduce the risk of data breaches. 

• Encryption: Encryption is essential for businesses that need to protect sensitive information, such as financial records or trade secrets, from unauthorized access or theft. By converting data into a code or cipher, encryption makes it more difficult for hackers to read or steal sensitive information. In addition, encryption can help businesses comply with data protection regulations, such as the General Data Protection Regulation (GDPR) in the EU or the California Consumer Privacy Act (CCPA) in the US. 

• Biometric authentication: Biometric authentication uses physical characteristics, such as fingerprints or facial recognition, to verify the identity of a user. This can be particularly useful for businesses that handle sensitive information or need to restrict access to secure areas or systems. Biometric authentication can help ensure that only authorised individuals are granted access, reducing the risk of data breaches or other security incidents. 

Read reviews and feedback 

Another way to gauge the safety and reliability of an online bank is to read reviews and feedback from other customers. This is an easy one, look for reviews on independent websites (like Trustpilot, Consumer Reports…) or forums (Reddit, Quora…), and check the bank's social media pages for customer feedback. You can also check if the bank has won any awards or accolades for its services. 

Review their privacy policy 

You might think this is useless but have a look for information on the bank's website about their security protocols, including encryption, firewalls, and intrusion detection systems. 

• Check that the bank complies with GDPR, such as providing clear information on how they collect, use, and process personal data, and offering mechanisms for individuals to exercise their rights under the law, such as the right to access, rectify, or delete their data. 

• Check that the bank complies with other privacy laws. For example, the UK has its own data protection law, the Data Protection Act 2018, and other laws, such as the Privacy and Electronic Communications Regulations (PECR), which govern electronic marketing and cookies. 

• If the bank is based in the US, check for Privacy Shield certification, which is a framework for protecting the privacy and rights of individuals whose personal data is transferred from the EU to the US. The framework was invalidated by the EU Court of Justice in 2020, but businesses that were certified under the Privacy Shield may still rely on the certification for some time. 

• Make sure the bank uses appropriate safeguards for cross-border data transfers, such as through standard contractual clauses or Binding Corporate Rules. 

• Check that any third-party processors used by the bank are GDPR-compliant. 

Conclusion 

Online banking has revolutionised the way we manage our finances, but it's important to ensure the safety of our money. By checking if the bank is regulated, looking for deposit protection schemes, checking for strong security measures, reading reviews and feedback, and using common sense, you can ensure that your money is safe in an online bank.