PayPal, Venmo and Cash App don’t want you to know this
Sometimes, digital payment apps feel like the equivalent of finding $20 in a jacket pocket. I have $34 sitting in Venmo, $215 in Apple Pay and …
This isn’t a big deal if you keep a few bucks around to pay back a friend for a drink. But this is huge if you get paid directly to PayPal or Venmo for anything. Unlike the money at your FDIC-insured bank or credit union, you can lose your money sitting in these apps.
What’s the big deal?
The Consumer Financial Protection Bureau says more than 75% of American adults have used one of these apps. That number is steadily growing as more folks get comfortable with the tech.
When money makes it to your bank or credit union, it’s almost certainly protected by the Federal Deposit Insurance Corporation, or FDIC. It’s generally insured up to $250,000 per account — and it’s why we can sleep at night knowing our money is safe even if we can’t see it.
If it never hits a bank, it never gets insured
PayPal, Venmo and Cash App don’t send your money to a bank account, of course. It sits in the app, meaning those companies control it and that’s how they make the big bucks. They invest money in the app’s customer accounts and charge you fees for using premium features like instant transfers.
Seems unlikely that PayPal, for instance, could fail. But if it did, you’d probably be SOL. Just look at what happened to everyone who had money in the crypto exchange company FTX — billions of dollars gone overnight, just like that.
Take these steps now
What if you’re a business owner who gets paid or tipped through these apps? PayPal lets you set up automatic bank transfers based on the time or your account balance, which is excellent … with a caveat: You need a Business account.
- Click the More Options icon next to your balance. Select Automatic transfers.
- Select a bank account, the frequency and the amount. Click Turn on Automatic Transfers.
❌ Use Venmo or Cash App?
I recommend setting a calendar reminder to transfer your money out of the app every two weeks or at least monthly. An inconvenience, sure, but you’ll be glad you did if things ever go bad.
But wait! There are some protections
Certain digital payment apps do offer FDIC insurance on balances through partner banks:
- Apple Cash
- Chime
- Aspiration
- SoFi Money
- Cash App (for holders of Cash App’s Cash Card)
Money held in a standard PayPal account is not FDIC insured, but PayPal does offer a feature called a PayPal Cash Plus account, which may be eligible.
While you’re in the settings …
Take a look at privacy. Depending on the app you use, anyone else with the app in the entire world can see every single one of your transactions. Let’s fix that.
- PayPal: Go to Settings > Data & Privacy.
- Venmo: Tap your profile icon > Settings gear icon > Privacy. Under Default privacy settings, select the bubble next to Private.
FYI, there’s no need to do this on Zelle since there’s no social feed like the others. On Cash App, too, transactions are private by default. Score.
🏦 A bank is a place that will lend you money if you can prove you don’t need it.
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Tags: Apple, apps, insurance, privacy, settings
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