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We sometimes sit in amazement when we think about the massive changes that the Internet has made in our lives. We once worked for a company that was almost literally destroyed by the Internet. On the plus side, the Internet has made our lives much easier in a number of different ways. Many people, us included, have stay-at-home jobs made possible by the Internet. We can comparison shop for thousands of different items including our auto and life insurance without ever leaving the comfort of our homes – again thanks to the Internet. And now, there are online-only banks that can seem very attractive because of the interest rates they offer. You can even borrow money online through a process called peer-to-peer lending where there is no bank involved. But can you really trust those online-only banks?
Why they can offer higher interest rates
The reason these online-only banks can offer higher interest rates is for the same reason that companies can sell products online cheaper than through brick-and-mortar stores. These banks simply have lower overhead. They have no buildings that must be maintained, no branch banks and many fewer employees. Of course, the interest rates they offer are still fairly paltry as they typically range from 0.84% to 1% – but that’s due to today’s low prime rate as set by the Federal Reserve and not because of anything those banks are doing or not doing.
Security isn’t really an issue
Those brick-and-mortar banks might seem to offer more security but they actually don’t. They are really no safer than the online-only banks according to many financial planners. This is because they use a technique called encryption to protect your and their information. Encryption makes it very difficult if not impossible for people other than you or the bank to access your information,
Just follow these tips
If you decide to use one of these online-only banks and want to protect your money and personal information, there are some tips you should follow.
- Check to make sure that all your deposits are federally insured
- Watch for copycats
- Look out for identity thieves
- Carefully craft your banking password
Check to make sure that all deposits are federally insured
The FDIC or Federal Deposit Insurance Corporation protects your money in the event that your online-only bank fails. However, do keep in mind that this protects you only up to $250,000 in deposits for each account holder. You can see if the online-only bank is FDIC insured by checking its website. Or you could go to the FDIC web site and click on the link titled Help – First Time Users.
Watch for copycat sites
As you may know, there are a lot of scammers out there that will attempt to trick you by creating sites that look to be those of real financial institutions. Keep in mind that just because the site looks like it’s that of a popular bank, it doesn’t mean that it is. You should always make sure that you type the correct web address into your browser before doing any transaction. Also, don’t ever click on any link within an email. This is because con artists often send fraudulent messages in an attempt to get your personal information.
Look out for identity thieves
Before you use any online banking tools, whether it’s through an online-only or physical bank, you need to ensure that it’s encrypting your information. There should be a lock or key icon in the web address window of your Internet browser. If so, you’ll know that your information is being encrypted and that it’s unlikely that a thief will be able to steal your identity.
Carefully craft your banking password
Whatever you do, don’t use a password associated with your birthday, street address, Social Security number or some other number that would be easy for a thief to guess. Your password should be at least eight characters long. At least one of those characters should be a number and one should be a capital letter. If you have a problem remembering passwords, you might create one associated with a school or event that only you would know. For example, if you graduated from South High School in 1984, you might create the password 1984_SHS_99x.
You should also use a password that’s different from those used with other accounts such as your email. And, finally, try to remember to change your password regularly.
Peer-to-peer lending
A second way to use the Internet for your banking is through what’s called peer-to-peer lending. This is where you borrow money directly from a person or group of people to consolidate debts, buy a car or for any other worthwhile cause and where there is no third party such as a bank involved. There are a number of these lenders available online. Two of the most popular are Lending Club and Prosper. Both of these offer unsecured loans at a variety of interest rates that range from 6% to 29.99%, depending on your credit score and situation. One of these loans can be a good way to pay off credit card debt because you should be able to get a much better interest rate than what you’re currently paying on those debts.
If you think you might like a peer-to-peer loan, here are some tips that might be helpful.
- Think like a lender – the more you can convince the potential lender that you’re a good risk the better
- Tell the truth
- Describe your situation as much as possible
- Be sure to check your grammar and punctuation
- Have realistic expectations
- Don’t act desperate
- Respect the contract
Here’s a short video explaining more about peer-to-peer lending and how it helped one Army vet.
