Are Online Banks Safe in Canada? 

It’s a well-known fact that online banks provide access to competitive interest rates, low fees, convenience, and safe investments with high returns.

Despite this, it’s essential to assess their safety measures before switching to them.

In this article, we’re going to look at the factors that make online banks safe. We will be focusing on online-only banks, not online bank branches of traditional banks.

I also cover other relevant factors you need to know when choosing an online bank in Canada.

Let’s go there!

What are Online Banks?

Online banks, also known as digital banks, neobanks, or virtual banks, are financial institutions that operate primarily through digital platforms such as websites and mobile apps. 

Unlike traditional banks with physical branches, online banks provide banking services entirely online, allowing customers to conduct various financial transactions and manage their accounts remotely.

Online banks in Canada offer a wide range of services similar to those provided by traditional banks. These services typically include:

  • Opening and maintaining savings and chequing accounts
  • Issuing debit and credit cards
  • Providing loans and mortgages
  • Facilitating bill payments and money transfers
  • Offering investment options. 

Customers can access these services at their convenience, 24/7, from anywhere with an internet connection.

Some of the best online banks in Canada include:
  • Tangerine Bank
  • EQ Bank
  • Simplii Financial
  • Neo Financial
  • Oaken Financial

The main advantage of online banks is convenience. They eliminate the need for you to visit physical branches, allowing you to conduct banking activities from the comfort of your home or while on the go.

While online banks may not have physical locations, they still prioritize security and employ various measures to protect customer information and transactions. 

These measures include advanced encryption Two-Factor Authentication and continuous monitoring for potential fraud or suspicious activity.

It’s worth noting that some online banks in Canada operate as standalone entities, while others are extensions or digital divisions of traditional banks. This article focuses on standalone or online-only banks.

Are Online Banks Safe in Canada?

All banks in Canada (both traditional and online) are expected to adhere to the same regulatory standards and guidelines set by regulatory bodies such as the Office of the Superintendent of Financial Institutions (OSFI).

But that’s not enough to conclude that an online bank is safe.

Below are other factors that make online banks safe in Canada.

1. CDIC Coverage 

Virtually all online banks in Canada are CDIC-insured. 

CDIC stands for the Canada Deposit Insurance Corporation, a federal Crown corporation that provides deposit insurance to eligible deposits held at member financial institutions. 

This coverage protects customers’ deposits in the event of a bank failure, up to a $1,000 coverage limit per insured account

Bear in mind that online banks that are not insured by CDIC are usually covered by provincial bodies such as:

  • Financial Services Regulatory Authority of Ontario (FSRA) – offers up to $250,000 coverage per individual non-non-registered account and unlimited coverage per registered account
  • Deposit Guarantee Corporation of Manitoba (DGCM) – provides a 100% guarantee per depositor 

With this, you can have peace of mind knowing that your deposits are protected up to the specified limit, enhancing the overall safety of your funds.

2. Advanced Encryption

One crucial safety feature of online banks in Canada is advanced encryption.

Encryption is the process of converting sensitive data into a coded form that can only be decoded with the appropriate encryption key. 

Online banks use advanced encryption algorithms to protect customer information and transactions. 

This ensures that data transmitted between customers and the bank’s servers remain secure and inaccessible to unauthorized parties. 

By employing strong encryption protocols, they significantly reduce the risk of data breaches and unauthorized access to customer accounts, providing an additional layer of protection.

3. Two-Factor Authentication (2FA)

Two-Factor Authentication (2FA) is a crucial safety feature offered by online banks in Canada. 

It adds an extra layer of security to the login process by requiring users to provide two forms of identification.

2FA involves entering a password or PIN (something the user knows) and then verifying their identity through a second factor, such as a unique code sent to their mobile device or generated by an authentication app.

This ensures that even if a password is compromised, unauthorized access to the account is prevented.

4. Zero Liability Policy 

Most online banks that partner with Visa or MasterCard provide access to Zero Liability Policy.

With this policy, you will not be liable for any financial losses in case of fraudulent or unauthorized transactions from your account.

All you need is to promptly report the unauthorized activity on your account, and the online bank will investigate and reimburse your funds.

This policy provides an additional layer of protection and peace of mind for customers, encouraging them to trust the security measures implemented by online banks and use their services confidently.

In addition to Zero Liability Policy, most online banks also offer purchase protection and extended warranty in addition to other insurance.

5. Strong Backing 

Another safety feature in Canada is their strong backing.

Most online banks are subsidiaries of some of the big banks in Canada. For instance, 

  • Simplii is owned by CIBC
  • Tangerine is owned by Scotiabank
  • EQ Bank is owned by Equitable Bank
  • Oaken Financial is owned by Home Trust Company

This affiliation provides customers with an added layer of security and trust. 

Additionally, they often partner with other big and reputable companies, such as payment processors or technology providers. 

These collaborations further enhance the credibility and reliability of online banks, ensuring that customers’ funds and personal information are protected.

How to Choose the Best Online Bank in Canada

Besides safety, there are other relevant factors you need to consider when choosing the best online bank in Canada.

Below are seven additional factors to consider:

1. Products

Assess the range of banking products offered, such as:

  • Bank accounts (registered and unregistered)
  • Debit and credit cards
  • GICs
  • Investment accounts
  • Loans
  • Lines of credit
  • Mortgages

As expected, you want to choose an online bank that aligns with your financial needs.

2. Fees

Compare fee structures, including monthly maintenance fees, transaction fees, ATM fees,  overdraft charges, and inactivity fees among others. 

Related: 9 Ridiculous Common Bank Fees Burning Your Finances

3. Interest Rates

While online banks are famous for offering competitive interest rates, some offer insignificant rates.

Consider the interest rates on savings accounts, chequing accounts, GICs, loans, lines of credit mortgages, and so on.

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4. Customer Support

Evaluate the availability and quality of customer support through channels like phone, email, or live chat. Read reviews to get a better understanding of the bank’s customer service 

5. Promotions

Check for welcome bonuses, discounts, referral rewards, and other promotions that provide added value and incentives.

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6. Accessibility

Ensure the online bank’s platform is user-friendly, with intuitive interfaces and robust mobile apps for easy access and smooth navigation.

7. Eligibility

Confirm the eligibility criteria for account opening, including age restrictions, credit score requirements, residency requirements, and any minimum deposit or balance requirements.

Advantages and Disadvantages of Online Banks in Canada

The following are the main advantages and disadvantages of online banks: 

Advantages of Online Banks 

  • Easy to set up and access: Online banks offer a streamlined account setup process and convenient access through user-friendly websites and mobile apps.
  • Low fees: Online banks often have lower fees compared to traditional banks, saving you money on maintenance fees, transaction fees, and other charges.
  • Competitive interest rates: Due to their low operational costs, online banks are known to offer higher interest rates on savings and investment accounts, and low interest on loans, mortgages, etc. 
  • No minimum balance: Many online banks have no minimum balance requirements, allowing customers to open and maintain accounts without the pressure of meeting a specific balance threshold.
  • Convenience: Online banks provide 24/7 access to financial services, allowing you to manage your accounts and conduct transactions at your convenience, from anywhere with an internet connection.
  • Perks: Online banks often offer perks such as sign-up bonuses, rewards programs, cashback offers, or exclusive discounts on partner products or services, providing additional value to customers.

Disadvantages of Online Banks 

  • No physical locations: Online banks lack physical branches, which may be a disadvantage for customers who prefer face-to-face interactions or need in-person assistance for certain banking needs.
  • Unsuitable for complex transactions: Online banks may have limitations when it comes to more complex financial transactions or services that require personalized advice, such as complex investment strategies or specialized lending products.
  • Security issues: Online banks face the risk of cyber-attacks and downtime, which can compromise customer data and disrupt banking services. While measures are in place to mitigate these risks, they still exist and require vigilance from both the bank and the customer.

The Bottom Line

Canada has a well-regulated financial industry, and online banks are subject to the same rigorous standards and regulations as traditional brick-and-mortar banks. 

Online banks are required to protect customer information and transactions using the industry’s best practices.

However, you need to exercise caution when using online banks by using strong passwords, activating 2FA, avoiding public Wi-Fi networks, and regularly monitoring your accounts for any suspicious activity. 

Overall, online banks are generally safe in Canada. 

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About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

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