Here are tips to help you avoid online problems and scams

As the Internet continues to expand, more banks are offering customers the ability to transfer funds, view account information, pay bills and conduct other transactions over the 'Net. In addition, other companies are offering customers the ability to shop online.

While "cyberbanking" and "cybercommerce" offer great convenience, they can be sources of concerns for consumers. The FDIC is aware of a few problems and pitfalls in particular, including:

• Companies pretending to be banks offering unusually high interest rates on deposits that, in reality, are not banks and are not insured by the FDIC;
• Thieves using sophisticated computer programs to obtain sensitive information, such as credit card or Social Security numbers, when consumers pay for purchases over the Internet or send e-mail to friends;
• Get-rich-quick schemes and fraudulent investment opportunities appearing on the Internet; and
• People or companies collecting information about the buying habits or interests of consumers
  who visit their Internet sites, and then selling that information to other companies - resulting in unwanted e-mail solicitations.

How can you protect yourself when banking, investing or shopping online? Here are tips from Jeffrey Kopchik, an attorney in the FDIC's Office of Policy Development in Washington who specializes in electronic banking and commerce, and Cynthia Bonnette, the chairman of an FDIC task force on new banking technologies.

Guard against a bogus Internet site: Be skeptical about an Internet site claiming to be a bank that offers interest rates on deposits significantly above what other banks are paying. Also be skeptical if the advertisement is offering any other deal that seems too good to be true (such as tax-free deposit accounts) because it probably is too good to be true!

Kopchik says that before depositing funds in a bank that advertises or transacts business on the Internet, make sure the institution has been legally authorized to do banking business. You can find that out by calling your state banking department (usually listed in your local phone book) or any of the federal banking regulators noted in the For More Information section of this newsletter. "Some entities operating on the Internet aren't banks even if the word 'bank' appears in their name or they describe themselves as a bank," Kopchik notes. "Two uninsured entities falsely claiming to be Internet banks were Freedom Star National Bank and Netware International Bank; both were recently shut down by authorities."

Consumers who send money to a bogus bank run the risk of losing their funds when the people who created it shut down the operation and disappear with the money. Consumers also should be aware that other types of financial services companies and some foreign banks operating Web sites are not FDIC-insured. People who send money to those institutions won't get their funds back from the FDIC if the company closes. A recent example of a foreign bank on the Internet that closed and caused losses was the European Union Bank based in the West Indies.

You also can find out if a bank's deposits are federally insured by calling the FDIC's Division of Compliance and Consumer Affairs toll-free (see details in the For More Information section of this newsletter) or by consulting the Institution Directory on the FDIC's Internet home page. Be aware that some legitimate banks operate on the Internet using trade names that differ from the legal name of the institution. When in doubt, your best bet is to call the FDIC.

Before purchasing goods or services over the Internet: Try to find out if anyone you know has dealt with the merchant online and ask how it went, Kopchik says. If you don't have personal references for the merchant, consider asking for guidance from your local Better Business Bureau or Chamber of Commerce. Both the U.S. Chamber of Commerce and the American Institute of Certified Public Accountants have indicated that they have plans to "certify" merchants who do business over the Internet. Some Internet service providers vouch for merchants that operate from their sites. For example, America Online will cover your maximum loss from credit card fraud ($50 per card under federal law), provided you report the fraud promptly.

Be careful using your credit card number when buying over the Internet. Most reputable merchants who accept card payments over the Internet use a system that scrambles or "encrypts" your card number so it can't be read by outsiders. The latest version of some popular Internet browser programs (such as Netscape Navigator and Microsoft Internet Explorer) may be equipped with encryption technology. Your computer screen generally will display some sort of logo (for example, a "lock and key") showing that your message is being encrypted. The major credit card associations (VISA and MasterCard) also have announced plans to start a new system they say will safely transmit credit card numbers over the Internet and verify the authenticity of merchants.

Some merchants may encourage you to pay electronically without using your credit card number. Perhaps you'll be asked to maintain an "electronic wallet" with a company (CyberCash is one) that will pay the merchant on your behalf. In other cases, companies will enable you to pay a merchant using your credit card but without transmitting the card number over the Internet.

Finally, if you think you've been victimized by a fraud, contact the Internet Fraud Watch of the National Fraud Information Center, which forwards reports of suspected crimes to federal and state authorities. Its toll-free number is 800-876-7060, and its Internet site is www.fraud.org. Or, you can report the suspected fraud directly to the appropriate federal or state agency (for example, the Securities and Exchange Commission if the company is a stockbroker).

Privacy on the Internet: As you spend time on the Internet, the various Web sites you visit may collect information about you, with or without your knowledge, regarding such things as the kinds of products you buy and the topics you find interesting. These Web sites may use this information internally or sell it to other firms or organizations. While these practices are not illegal, they may result in unwanted e-mail from unfamiliar companies or groups.

"Look to see if a Web site you are visiting discloses the company's policy about collecting and using the information it gathers," says the FDIC's Bonnette. "If it doesn't disclose its policy and you want to know more, follow up by calling or e-mailing the company." Among your other options: software from Internet service providers and computer stores that can block unwanted e-mail.

Final Thoughts

While the Internet has made it possible to bank, invest and shop from the comfort of your home, you still have to be cautious. After all, just because you "surf" the Internet you don't want a thief to "wipe out" your money.