Protection for Online Accounts

Mutual fund firms are pushing hard to get customers to sign up for online access to their accounts. But what if someone hacks into my account and empties it? Would I have any legal recourse to require the mutual fund company to reimburse me for the loss?

To put it bluntly, no. "Customers have no recourse unless they can prove that the institution was negligent in the theft," says Matt Bienfang, senior analyst with TowerGroup, a financial-services consulting firm.

But that doesn't mean you shouldn't do business on the Internet. Fund companies and brokers have gone to great lengths to protect your money online, both by encryption technology and by administrative procedures that would make it tough for someone to clean out your account.

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At T. Rowe Price, for example, proceeds are sent only to the address you have on record. So if somebody were to hack into your account, the check would still show up at your address and be payable to you. If an address change is submitted online, the company does not allow redemptions for ten business days and sends a confirmation of the change to both the new and the old addresses.

Charles Schwab and E*Trade are among a handful of online brokerages that offer a security guarantee, promising to cover 100% of any losses in your account because of unauthorized activity. But those guarantees aren't ironclad. At Schwab, for instance, there's a key disclaimer: "If you share [your login or password] with anyone, we'll consider their activities to have been authorized by you."

Even if you're found to be at fault, you still may be able to get your money back. Bienfang cites a North Carolina case in which E*Trade made the customer whole, even though the client had not installed security software, such as spyware protection, on his computer. "E*Trade felt that any damage to its brand as a result of the incident would be more expensive than reimbursing the client's loss," says Bienfang.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.