“Why You Should Think Twice Before Leaving Money in Payment Apps”

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Risks of Storing Money on Payment Apps

More than three-fourths of American adults have used a payment app, according to Pew Research. While these apps are touted as safe and transparent, there are potential risks associated with using them to store your money. Since funds stored on payment apps are generally not insured, it can be risky to use them as a place to park your cash.

In June 2023, the Consumer Financial Protection Bureau (CFPB) issued a warning about the safety of these increasingly popular apps. Read on to learn about the risks of storing money on payment apps.

Lack of Federal Insurance

Cash stored on some payment apps might not be federally insured by the Federal Deposit Insurance Corp. (FDIC). Unlike banks or credit unions, payment apps aren’t required to insure your funds. If the company behind the app shuts down, your money might not be protected.

Some apps offer “pass-through” insurance from a bank or credit union if you sign up for additional services. For instance, if you have a credit card affiliated with the app, you might qualify for this insurance.

You May Not Know How Your Money Is Stored

User agreements for payment apps often lack information about where your money is being held or invested, whether it is insured, and what would happen if the app owner or an entity holding the money failed.

Limited Access to Your Funds

If you need to use the money stored in your payment app, it may take days to transfer it to your bank account. While some apps offer instant transfers, they often come with an extra fee. This delay could cause issues like late fees or missed payments, affecting your financial health.

No Returns on Your Deposits

Many bank accounts accrue interest on balances stored within them. High-yield savings accounts and certificates of deposit accounts are reliable, low-risk ways to earn money on your cash balances. Payment apps typically don’t offer this benefit, so you’ll miss out on growing your savings through compounding interest.

Should You Move Your Money or Leave It in the App?

Until payment apps are set up to automatically move cash into a user’s insured account, consumers should consider withdrawing any balances kept on these apps and shifting them to insured accounts, according to the CFPB.

“Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account, but lack the same protections to ensure that funds are safe,” said Rohit Chopra, director of the CFPB.

Are Peer-to-Peer Payment Apps Regulated?

Payment technology companies that don’t operate as banks aren’t federally insured and aren’t overseen by federal regulators. However, they face close scrutiny from the CFPB and the Federal Trade Commission (FTC). On the state level, attorneys general have investigated issues such as how app companies handle consumer complaints. Some states are creating policies and passing laws to further regulate payment apps.

How to Use Payment Apps Safely

To safely use payment apps, follow these tips:

• Quickly move cash balances to an insured account. Consider shifting money stored on a payment app to a federally insured account, such as your bank or credit union checking or savings account.
• Set up multifactor authentication. Using multifactor authentication, such as a password and login coupled with face ID or fingerprint verification, can further protect your payment account from being hacked.
• Verify a recipient’s identity before sending money. You can verify the identity by using a recipient’s phone number, email address, or QR code.
• Keep an eye on your accounts. Regularly check your accounts to see whether any unauthorized transactions have occurred.
• Don’t send money to a business if a payment app is the only option. If an app is the only payment option, be suspicious. It could mean a fraudster is on the other end of the transaction.

The Bottom Line

While payment apps offer convenience, they aren’t great places to store your cash on a long-term basis. To avoid losing your money, consider moving any app balances to an insured account at a bank or credit union. Be sure to embrace other ways to protect your cash, such as enabling multifactor authentication on the app and verifying a recipient’s identity before you send money.

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