Why You Should Pull All Your Extra Cash Out of These Apps ASAP

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Digital payment apps are convenient, but they don’t offer the same level of protection as traditional banks. Read on to learn why. 

Mobile payment apps like Cash App, PayPal, Venmo, and Zelle have made sending and receiving money easier than ever. They allow you to transfer funds from one account to another in just a few taps. It’s hard to imagine life without them. However, there’s a crucial fact that these apps don’t advertise enough — they are not FDIC insured. What that means is that if something goes wrong, you could lose your money. Here’s why you should pull all your extra cash out of these apps ASAP and look for alternatives.

Popularity of digital payment apps

The world is changing, and digital payment apps are becoming more prevalent. It seems like everyone is using these apps to handle their finances. From peer-to-peer payments to mobile banking, these apps offer a quick and easy way to manage money.

In fact, three-quarters of Americans trust digital payment apps at least as much as they trust cash or credit and debit cards. But, there are several things you need to be aware of when using them.

The FDIC insurance safety net

The FDIC (Federal Deposit Insurance Corporation) is an independent government agency that protects depositors in case a bank or savings institution fails. FDIC insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category.

However, mobile payment apps like Cash App, PayPal, Venmo, and Zelle are not backed by the FDIC. If the app fails, you could lose your money. They function as digital wallets or payment systems, not banks.

They don’t hold deposits, and they don’t use the traditional banking system. In other words, they are not part of the FDIC-regulated financial system. Additionally, these companies don’t have the same regulatory oversight as traditional banks, so there’s no guarantee your money is safe.

No interest

Mobile payment apps also don’t pay interest on funds held in the app. In contrast, bank accounts offer interest, and with the recent interest rate hikes, high-yield savings accounts are even more appealing for those looking to earn money.

Security risks

When you transfer funds from your bank account to a mobile payment app, you are essentially giving your money to a third-party provider. While these apps offer convenience and speed, most mobile pay apps don’t offer the fraud protection banks provide, and can come with other risks.

Mobile payment apps are vulnerable to fraudsters who use social engineering, phishing, and malware to steal your money or personal information. Mobile payment apps are also susceptible to hacks, especially if connected to an unsecured public wifi. If the app’s security is breached, your account information and money could be at risk.

Mobile payment apps depend on reliable internet connections, cellphone signals, and software updates. Any disruption in these areas can cause delays, or worse, the loss of your funds.

What you should do instead

Payment apps like Venmo and PayPal are a convenient way to handle your finances, but it’s important to be mindful of where you store your extra cash. For optimal financial security and savings, move your excess funds to your FDIC-insured bank account.

Keep only enough money in these apps to cover your immediate needs. If you have extra cash, transfer it to a traditional bank account. This simple step will safeguard your money, give you prompt access to it, and even earn interest.

While mobile payment apps like Cash App, PayPal, Venmo, and Zelle may seem like a convenient way to send and receive money, they come with significant risks. If something goes wrong, you could lose your money. It’s essential to be aware of these risks and take steps to protect yourself. The best way to do that is to pull all your extra cash out of these apps ASAP and look for alternatives that are backed by FDIC insurance or offer better security features. By doing so, you’ll have peace of mind knowing that your money is safe.

These savings accounts are FDIC insured and could earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: short June 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.

 Read More