Linking your bank account to third-party services online comes with certain risks. While today's personal finance apps and and third-party payment processors offer a high level of security, data breaches still pose a risk to any information you share by linking your checking or savings account. When linking your account to a third-party service, you should consider how your bank's terms of service treats such situations.
- When Do You Need to Link Your Bank Account Online?
- Is it Safe to Link Your Bank Account Online?
- Does Linking Your Account Affect Your Relationship With the Bank?
- What Steps Can You Take to Protect Your Bank Account?
When Do You Need to Link Your Bank Account Online?
Many people link their bank accounts to online services that offer money management features. These apps automatically track purchases and help you budget more efficiently, while others link to your investment accounts to estimate your net worth and keep you on track for retirement. Linking your accounts to such apps can give you a more accurate and detailed understanding of your current financial situation.
People also link their bank accounts to use third-party payment options such as Paypal or Venmo. These accounts require that you link your credit card or bank account to participate in money transfers with other people. For example, you might choose to link your Paypal account so that you can buy or sell goods online. Digital currency companies, such as Coinbase, also require you to link a bank account in order to purchase and exchange coins.
When you link your bank account to a third-party service, you'll need to enter information such as your account number and online banking login details. The third-party service will be provided with details such as your personal information, the type of bank account you have, its balance, and transaction history. This data is used by budgeting apps to present certain financial details to you, while payment apps make withdrawals and deposits on your behalf.
Many companies have read-only access to bank account information you provide, meaning that they can only see your account history. In other words, even if you enter your bank login details, third-party services don’t receive any of that information. Other security measures include two-factor authentication, which is an extra layer of security—you provide an additional piece of information that only the user can access, such as a code received via text message.
Is it Safe to Link Your Bank Account Online?
Companies that ask to link your bank account online are generally safe, but the risk of losing your information increases as you sign up for additional services. The more places you divulge account information, the higher the risk of a data breach. However, the high level of security provided by third parties means that you're more likely to lose account information through a targeted attack than from a larger breach.
The most common method of targeted attack involves a technique known as phishing. Phishing emails pose as official communications from your bank or a third-party app, and will falsely ask you to confirm your login details for a technical purpose. Legitimate parties will never solicit your bank information unless you initiate contact first, so you should never offer private details to emails that claim they're from a service you've already signed up for.
Does Linking Your Account Affect Your Relationship With the Bank?
While banks can’t prevent you from linking your account to other services, most institutions advise you against it. Major banks warn their customers that giving out bank details can result in compromised accounts. The terms of service at such banks state that the customer is responsible for the loss: the bank may not be liable in cases where an account holder willingly shares account information with third parties.
Banks issue such warnings because they have no control over the security practices that third parties employ. Even if the bank’s security measures are excellent, such methods offer no protection if account holders share their bank information with other companies that follow looser standards. Even if your bank chooses to cooperate in a case of identity theft, the involvement of third parties can mean a significant delay in recovering any lost funds.
What Steps Can You Take to Protect Your Bank Account?
To protect your bank account, make sure to read the fine print from your bank and the third-party service you want to use. Examine the terms of service for information on the third party's data security practices and whether your information can be sold to other companies. If your bank reserves the right to waive fraud reimbursement, consider whether the service is worth the risk.
If you decide to link your bank account, monitor your account activity on a regular basis. If there's suspicious activity, change your passwords and report the transactions to both the bank and third-party service. The longer you wait, the harder it will be for your bank to help you. Limiting the number of apps you use can also help—you shouldn't share your account information with more companies than you can keep track of.
Limit your risk by using your bank's in-house services whenever possible. See if your bank offers its own mobile apps for popular services. Many banks offer budgeting services to help you track your spending and categorize your expenses. Most major banks participate in Zelle—a payment service similar to Venmo and Paypal. By using the bank's services, you avoid spreading your account information to third parties.