Payment apps like Venmo and Cash App have become increasingly popular in recent years, but there are some risks to be aware of before you start storing your money in them. Here are a few reasons why you should avoid keeping large sums of money in payment apps:
Funds stored on apps often lack insurance
Unlike traditional bank accounts, funds stored in payment apps are not typically insured by the FDIC. This means that if the company behind the app goes out of business or if your account is hacked, you could lose your money. The CFPB has found that funds stored in payment apps "may be at significantly higher risk of loss for a consumer than if it is deposited in an insured bank or credit union account."
| Payment App | Deposit Insurance |
|---|---|
| Venmo | Funds added via direct deposit or check cashing are covered. |
| Cash App | Funds are eligible for insurance if consumers link their account to a Cash App debit card. |
| PayPal | Offers separate high-yield, FDIC-insured savings products. |
Payment apps may charge fees
While many payment apps offer free services for basic transactions, they may charge fees for certain services, such as sending money to someone who is not a registered user of the app or withdrawing money from your account. These fees can add up over time, so it's important to be aware of them before you start using the app.
- Venmo charges a 3% fee for sending money to someone who is not a registered user of the app.
- Cash App charges a 1% fee for instant transfers.
- PayPal charges a 2.9% fee for sending money to someone who is not a registered user of the app.
Look for a high yield savings account instead of storing money in apps
Some payment app companies are able to invest users' funds in loans and bonds, earning money on the investments while generally paying no interest on users' balances. To maximize your own funds, immediately transfer any deposits to an account where you can collect interest.
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