Have cash sitting around in an app like Venmo, Cash App or PayPal? The Feds just put out a new major warning: Unlike the money at your FDIC-insured bank or credit union, you can lose your money sitting in these apps.
Not a big deal if you keep $20 around to pay back a friend for a drink. But this is huge if you get paid directly to PayPal or Venmo for anything.
What’s the big deal?
The Consumer Financial Protection Bureau says more than 75% of American adults have used one of these apps.
📈 In 2022, we’re talking $893 billion in transactions via payment apps. That’s estimated to reach $1.6 trillion by 2027. Whoa.
When money makes it to your bank or credit union account, it’s almost certainly protected by the Federal Deposit Insurance Corporation. It’s generally insured up to $250,000 per account — and it’s the reason we can all 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 automatically, 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 transfer.
It seems unlikely that PayPal, for instance, could fail. But if it did, you’d probably be SOL. Just look at what happened to all the people who had money in the crypto exchange 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 time or 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 amount. Click Turn on Automatic Transfers.
❌ Venmo & Cash App users are SOL
For you, I recommend setting a calendar reminder to transfer your money out of the app every two weeks or at least monthly.
I know what you’re thinking: “I’m so good at managing money, I got a letter from a debt collector for my “outstanding payment.”