Are Budgeting Apps Safe?

Budgeting apps can be fantastic tools that make it easier to manage your money. Gone are the days when you needed to sit down with a pen and paper and pore over your financial statements to understand your financial situation. Instead, you can connect an app to your bank account and you'll have the start of a budget in a matter of minutes.

That said, you've got to wonder how safe those apps are. I mean, it's one thing to trust online banking (and even that carries risks). It's quite another to allow an app you downloaded from the internet to access your financial information. The good news is that many top budgeting apps use banking-level security to protect your data. But in these days of data hacks and security breaches, it's still worth being careful.

What are the risks of using budgeting apps?

The two biggest security risks of using a budgeting app are that the company behind the app gets hacked, or that your device is compromised at a user level. At an app level, look for apps with good reputations and read their security policy carefully. If the app is transparent about what data they keep, why they keep it, and how they safeguard it, that's a pretty good start.

It's also good to look for apps that allow user-level protection such as PINs, multi-factor authentication, or passwords. We'll cover more actions you can take at a user level to protect yourself further on.

Here's what some popular apps say they do to keep your data safe:

• You Need a Budget: At a user level, access to the app is password protected. YNAB says it uses the same technology as the CIA to protect your data. It also has strict policies about access to user data and makes a strong commitment to delete your information if you close your account.
• Mint: Mint says it uses multi-layered hardware and software encryption and only stores the bare minimum of user information required to provide its services. In addition to password protection, at a user level, it also verifies your account periodically via text message or email.
• Goodbudget: Goodbudget doesn't need the same level of security as other apps because it doesn't connect to your bank account. Nonetheless, it says its data center is protected by bank-grade security. At a user level, the app lets users set a password.
• PocketGuard: The popular money management app says it uses the same level of security as your banking app. It doesn't store any credit/debit card account credentials. At a use level, it requires a PIN and password combination.

How to protect your online information

You can pick the most secure banking app or budgeting app in the world and it won't make any difference if criminals are able to access your phone or computer. I think of it like the Great Wall of China -- a huge, 13,000-mile-long wall that ran the length of the country. But it still got breached. Genghis Khan didn't need to break through the wall when he could bribe or extort the soldiers guarding it.

Unfortunately, cybercriminals are experts in getting your confidential data. Here are some ways you can make it harder for them:

• Use unique and hard-to-guess passwords for every app: As someone who used to use the same few passwords for everything, I speak from experience here. If the company you use to buy vegetables online gets hacked, your password will be out there. It means criminals could gain access to all your accounts. Find a system that works for you to create individual passwords for every account, such as a password manager.
• Set up multi-factor authentication: Multi-factor authentication goes above and beyond passwords -- you'll also need to provide extra information such as a fingerprint and a code from an authentication app when you log in.
• Don't open budgeting apps or online banking on public wifi: Public wifi networks can put your information at risk. Be careful about what apps you open if you're not on a secure connection.
• Watch out for phishers: Phishing is an increasingly common threat in which criminals pose as companies or financial organizations you trust, such as your bank, to get hold of your information. Be wary if you get an unusual message from your budgeting app asking you to click on a link or share your login credentials. Check the sender's address and any URLs carefully. Red flags? The domain name might be slightly misspelled or the language may not sound quite right.

Bottom line

There are several ways that budgeting apps can make it easier to manage your money, including setting up a budget, scheduling payments, and setting savings goals. If you're worried about security, it's reassuring to know that most top budgeting apps have high-grade data protection and encryption systems to protect your information.

That said, whether it's a budgeting or banking app, some of your online security depends on you. If you use any kind of app to manage your money, use strong passwords and only log on from secure networks. That way you can make the most of the convenience of apps without putting your money at risk.