As technology continues to revolutionize the way we handle money, the convenience of payment apps has become increasingly attractive to many. Peer-to-peer payment platforms like Venmo, Cash App, and PayPal offer seamless money transfers at the tap of a button. However, as the use of these apps skyrockets, consumers like Connor Tomasko are urging caution and advocating for safer money management practices.
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Funds stored on apps often lack insurance
- Courtney Alev from Credit Karma warns against leaving money sitting in payment apps due to a lack of deposit insurance. Unlike funds in traditional bank accounts protected by the FDIC, those in payment apps are not insured until transferred to an FDIC-insured bank or credit union.
- While some apps like Cash App and PayPal offer high-yield, FDIC-insured savings products, not all funds stored in apps enjoy such protection. The Financial Technology Association emphasizes the importance of understanding the level of coverage present in each app.
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Do apps always lack deposit insurance?
- There are exceptions to the rule. Cash App funds become eligible for insurance when linked to a Cash App debit card, and Venmo funds via direct deposit or check cashing may also be covered. Nevertheless, the CFPB emphasizes that deposits in payment apps remain at a higher risk compared to those in insured bank or credit union accounts.
- Look for a high yield savings account instead of storing money in apps
- Consumer advocate Courtney Alev suggests transferring funds from payment apps to high-yield savings accounts to maximize interest and prevent potential losses. By investing user funds in loans and bonds, payment app companies profit while offering no interest on balances, making it critical for users to transfer their money to interest-earning accounts promptly.
- Connor Tomasko echoes this sentiment, emphasizing the importance of transferring funds out of payment apps to avoid missing out on interest accrued from high-yield savings accounts. Her cautious approach involves using the ‘1-3 business day’ transfer option on Venmo and enabling Cash App’s automated routing to her bank account.
In light of the explosive growth in payment app transactions, the CFPB advises consumers to stay informed about the risks of leaving money in these apps and to consider transferring balances back to federally insured accounts. By practicing safe money management and seeking higher-yield alternatives, users can protect their funds and make the most of their financial resources. Awareness and proactive action are key in navigating the evolving landscape of digital payments.
