Virtual bank accounts are safe as long as they are regulated and licensed by the financial authorities in the country it operates in. These regulatory oversights mean that banks must follow specific security standards and procedures to protect customer funds. This includes but is not limited to, cybersecurity measures, insurance, and privacy policies.
Virtual bank accounts are bank accounts that exist only digitally, without a physical form. All account activities, such as deposits, withdrawals, transfers, and bill payments, are managed entirely through the online bank's website or mobile app.
This type of account offers convenient finance management from anywhere, anytime, with potentially lower fees and higher rates than brick-and-mortar banks.
Despite the advantage, virtual bank accounts are still a relatively new concept. So, while more than 70% of Americans use some form of online banking, there are lingering questions about the safety of virtual and online bank accounts.
This article explores virtual banks' various security measures in place to protect users and the steps you can take to mitigate security risks.
Are Virtual Bank Accounts Safe?
The short answer is yes.
Virtual banks are safe—so are their virtual bank accounts—if they adhere to the jurisdiction regulations in which they operate and employ secure online operations.
There are a variety of systems and techniques virtual banks use to protect your money, including:
- High-tech Authentication
- Secure Email Protocols
Here's how they work.
Encryption—Look for the S
Virtual bank encryption is a system that protects the data of online banking services from unauthorized access. It uses mathematical algorithms to transform the data into unreadable codes that can only be deciphered by those with the key—namely, you and the bank.
Encryption can be used for data in transit (when it is sent or received over a network) or at rest (when stored on a device or server).
Some of the common encryption methods are:
- Secure Sockets Layer (SSL):
SSL (Secure Sockets Layer) is an encryption protocol that establishes secure Internet connections. It encrypts data before transmitting it over the Internet from a web browser to a web server. SSL also authenticates the web server's identity using digital certificates known as "SSL certificates."
“SSL certificate” is a file containing data representing a specific online service authenticated by a trusted third-party company known as a Certificate Authority (CA), such as Verisign. Its purpose is to verify that the data transmitted, such as login information, transactions, or secure website hosting, is encrypted.
When you access a website with an SSL certificate, your browser will verify its legitimacy by checking its signature against the issuing CA. If the certificate is deemed valid, your browser will display a visual indicator, such as a green padlock or a branded URL bar, to confirm that the connection is secure and the website is authentic, not a fake website wanting to trick you and take your information.
SSL also prevents anyone from changing or messing with the information while it's being sent, much like a seal.
- Advanced Encryption Standard (AES)
AES is a symmetric-key algorithm that uses one key to encrypt and decrypt the data, widely used to encrypt institutions' databases, files, and communications.
- Public Key Infrastructure (PKI):
PKI is an asymmetric-key algorithm that uses two-key cryptography, a public key, and a private key. The public key can be shared, while its owner keeps the private key confidential. PKI also combines digital certificates to verify the validity of the key. PKI is commonly used to secure online transactions such as payments transfer and e-signature.
🔐Important: If your bank utilizes SSL encryption, the URL address should come with a lock icon and start with "HTTPS://" rather than "HTTP://."
All secure online banking has a system of fraud monitoring and fraud banking alerts set up for users' accounts. If there's any unusual or unauthorized use, the virtual bank will notify the account holder via email, push notification, text, etc.
Unusual activity that could trigger the notifications includes
- Transactions that exceed a certain amount or frequency
- Transactions that occur in unusual locations
- Transactions that involve high-risk categories, such as gambling
- Transactions that do not match your spending patterns or habits
Upon receiving the notification, you can protect your account by
- Verify whether the transactions are legitimate
- Freeze your account temporarily if you suspect unauthorized access
- Change your password or PIN
- Inform your bank if you suspect unauthorized access
Moreover, some virtual and online banks provide extra protection through fraud detection programs that run continuously in the background of their platform, constantly on the lookout for suspicious or hacker-like activity.
Multi-factor and dynamic passwords
Financial institutions use multi-factor authentication, such as something the customer knows (e.g., password, PIN), something the customer has (e.g., card, token, device), or something the customer is (e.g., "biometric password," fingerprint, face, retina, voice)
Transactions may also require dynamic passwords like one-time passwords (OTP) to add another security layer.
Additionally, Virtual banks often limit login attempts and analyze customer behavior to identify unusual activity. This quickly locks out hackers trying to guess passwords through brute force.
💡Tip: Brute force is a method of breaking into a system by trying many possible passwords using automated tools.
Financial institutions were the top target of phishing attacks in 2022. A phishing attack is a type of cybercrime, where hackers pretend to be trustworthy sources, like a bank, and trick victims into giving sensitive information like passwords or credit card details.
Virtual banks often prevent this manipulative tactic by offering their customers a private, secure email system. Otherwise, they will use robust encryption and authentication techniques to protect their message.
Is My Deposit Guaranteed?
Even with multiple security layers, all online systems have potential vulnerabilities. And hackers are constantly looking to exploit those weaknesses. Understandably, this raises concerns for customers about potential account breaches.
Plus, virtual banks can face unlikely yet possible challenges that parallel traditional banks, like bankruptcy.
To mitigate those risks, many online and virtual banks are insured or registered under the Deposit Protection Scheme in their location.
- In the US, all banks, including virtual ones, will announce if they are Federal Deposit Insurance Corporation (FDIC) insured and to what amount. You can also check the bank's FDIC status on the agency's website.
- In the European Union, virtual banks are subject to the same standards as traditional banks, and deposits are protected under the Deposit Guarantee Scheme Directive.
- In Hong Kong, every licensed bank, including virtual banks, must be part of The Deposit Protection Scheme (DPS) unless they are granted an exemption by the Board. The Hong Kong Deposit Protection Board, which is an independent legal entity, is responsible for overseeing the DPS.
Therefore, select a virtual bank only after verifying that they are insured or registered under, either directly or through a partner, with prominent cooperation within that location.
These insurances or guarantees keep your money safe to some extent, even in a security breach or bank failure.
Tips for Secure Online and Virtual Banking
Virtual banks already provide a lot of ease and security, but you can also take steps to protect yourself and your asset's future.
Here are the best practices when using virtual banking services.
Good Password Practices
Having good password practices helps a lot in trying to keep yourself safe online. Use passwords that are difficult to guess, don't use repeat passwords, and change your password immediately if you think it's been compromised.
Do not base your passwords on common words, names, dates, or personal details.
Birthdays, pet names, and favorite movies make for weak passwords that hackers can crack using tools or personal information they gather about you online or through social media.
Instead, create random passwords that contain numbers, upper and lowercase letters, special characters, etc., which are difficult to guess and differ for each account. If possible, aim for a longer password.
💡Tip: At a rate of 15 million key attempts per second, a 7-character password could be cracked in 9 minutes, while 13 characters would take over 350,000 years.
Use All the Tools
If your virtual bank offers fraud alerts, extra authentication, or any additional security, opt in! Additionally, update your banking application whenever the new version rolls out to get all the new or adjusted security features.
Avoid Public Wi-Fi
Connecting to public Wi-Fi networks can be a significant threat to the security of your bank accounts because hackers can
- Intercept your online transactions - Hackers can monitor and capture the data you send and receive over the public Wi-Fi network, such as your bank account number, password, PIN, or security code.
- Steal your login credentials - Hackers can redirect you to a fake bank website and trick you into entering your username and password.
- Install malware on your device - While connected to unreliable public, hackers can infect your device with malicious software that can spy on your activities, record your keystrokes, or steal your data.
Using mobile data with a secure internet connection instead of public Wi-Fi is best for safety.
Additionally, you can boost security using a trustworthy virtual private network (VPN) app, which creates an encrypted tunnel for your phone.
However, not all VPNs are safe or offer the same level of safety. Some may keep logs of activity or have weak encryption posing risks of a data leak. Therefore, select only reputable VPN services with robust security and a strict no-log policy.
💡Tip: Turn off the auto-connect setting on your phone or computer. This will keep it from automatically joining public Wi-Fi networks.
Don't Give Out Your Information
Never share your online banking credentials or account information like login details, security pin, answers to security questions, or verification codes with anyone, even if they claim to represent your bank or a trusted organization. Your bank will never randomly contact you through email or phone to ask for your personal or financial details.
Financial institutions have policies regarding communicating with and managing customer information. Often, these policies declare that they will never ask for specific details such as PINs or social security numbers.
Be Wary of Phishing Attempts
Do not click links or open attachments from unsolicited emails or text messages that ask you to verify your account details, update your information, or resolve issues with your online banking. Instead, contact the bank to confirm that the request is legitimate.
Research Before You Sign Up
The final and best practice to secure online banking is to know your virtual bank's total security measures before you sign up.
Read reviews from existing customers. Try searching if it has ever been a victim of a breach—and what steps the bank took to fix the issue.
Follow the steps and look for the virtual and online banking security measures above, and you can open a virtual bank account with all the confidence you might have in traditional banks.
🔎Tip: Are you considering the virtual banking experience in Hong Kong? Check out our top list of 8 Virtual Banks in Hong Kong
What is a virtual bank account?
Are virtual bank accounts safe?
How do virtual banks keep customers' money and information safe?