Is it safe to store money in Venmo, Cash App and PayPal?

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Today’s peer-to-peer payment apps have changed the way we spend our money. No more running to the bank to get cash to pay the babysitter or whipping out multiple credit cards at the restaurant to split the dinner check with a large group of friends. It’s much easier to just say, “I’ll give you the money.

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However, if you’re the popular neighborhood babysitter with a big Venmo, Cash App, or PayPal balance, or the person who picks up the tab at the restaurant and gets reimbursed through a P2P app, should you just leave the money on your account ?

All three apps have security features designed to protect your account. Each promises data encryption and fraud monitoring to protect your personal information and funds. But, despite their best efforts, the system is not infallible.

Fraudsters have several ways to trick you into divulging your information through phishing schemes, often using emails designed to look like they’re from PayPal or another app. And, if you ever fall victim to one of these scams, your money could be gone.

While it’s handy to leave a small amount of money in your account to pay off a friend who ran some errands for you, experts advise against leaving larger sums unused. Here’s why.

P2P applications lack the protection of a bank

Young Americans who grew up in the digital age may never have received money by check except from grandma as a birthday present, and may not see the point of having a checking account. , other than for direct deposit. From that account, they just pull the money through Venmo or another app to pay the bills. But, according to experts, P2P payment apps cannot replace a bank account.

If you leave a pot of money in your PayPal, Venmo, or Cash App account, it’s not protected by the Federal Deposit Insurance Corp. or the National Credit Union Administration like money in a bank or credit union. Moreover, you have no chance of earning any income from it.

“The rules of money are a lot like the rules of boxing. You have to protect yourself at all times,” said Stephen Kates, certified financial planner and director of Clocktower Financial Consulting. payment of your choice – PayPal, Venmo or Cash App – is not prudent for several important reasons.

“First, these apps are not banks and will not offer FDIC insurance on your money. Second, you do not earn interest on unused cash in these accounts when you could earn up to 2-3% your money in many high-yield savings accounts. Finally, these apps are much more susceptible to phishing and scams than a traditional bank. Once the money is gone, it’s hard to get it back. For these reasons , it’s always best to consolidate idle cash into a bank account.Never keep money in those apps that you couldn’t afford to lose.

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Is it likely that one of these applications will fail and crash tomorrow? Probably not. Yet your traditional checking account is insured for up to $250,000 in the event of bank failure. Can you say the same about your PayPal account?

Instead of using an app like Venmo to buy something like concert tickets online, use a credit card. If you have any problems with your purchase, remember that you are only liable for a maximum of $50 in the event of fraud. Also, depending on your credit card, you may earn rewards for shopping, not so much for paying with PayPal.

It makes tracking money – and saving it – more difficult

If you like to stick to a budget and report your money, having money spread across various applications doesn’t help you stay on top of your funds, said Jared Weitz, CEO of United Capital Source.

“Leaving money in a PayPal, Venmo, or Cash App account makes it harder to track your finances,” he said. “When all your liquid capital is not in one place, it is more difficult to have a clear picture of your financial situation. All in all, it’s a much wiser decision to leave your money in your bank account instead.

Having a balance in your P2P account could also lead to more impulse spending, which will drain your budget, said Joel Ohman, certified financial planner and CEO of ExpertInsuranceReviews.com.

“If you find that you’re mindlessly shopping too much, you may decide that the convenience of these apps is a barrier to sticking to a budget. So you can choose to keep a zero balance or a low balance to force you to think twice about your purchases,” he said.

Technical difficulties arise

Bonnie (Ling) Thich, financial blogger at Finsaavy Panda, said she lost access to a good amount of money through an app.

“Based on my personal experience and what happened to me, I would never leave a large amount of money in a PayPal account,” she said.

“My PayPal account was accidentally suspended with more than five digits. It wasn’t easy to fix the problem because they don’t have a physical location or number to call like most banks or financial institutions. J I had to deal with assistance through their online chat support which took three to four months to resolve with the risk of not getting my money back,” Thich added.

“It’s convenient for spending and transfers, but extremely inconvenient and risky when your account is suspended by accident. My advice is to avoid accumulating a large sum. Transfer most of your money to your bank as soon as you receive money or when you get paid.

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This article originally appeared on GOBankingRates.com: Is it safe to store money in Venmo, Cash App and PayPal?

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