Funds you have stored on your payment apps like Venmo or PayPal are most likely uninsured - the US Finance Agency says if you have money in PayPal or Venmo, download it now

The US Finance Agency says if you have cash in PayPal or Venmo, get it out now

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A few weeks ago the US banking system saw three banks, Silicon Valley Bank, Signature Bank and First Republic Bank all go bust after these financial institutions were busted by customers with uninsured deposits who withdrew their money as soon as possible. quickly as possible. And late last week a report released by the The Consumer Financial Protection Bureau (CFPB) has warned those who have cash stored in non-bank payment apps like Venmo or PayPal to withdraw that money because it may not be safe in a crisis.
You could argue that the Federal Deposit Insurance Corporation (FDIC) insures bank accounts up to $250,000, and you’d be 100% correct. But the money you have in Venmo or PayPal typically isn’t in a bank account and most likely isn’t covered by FDIC insurance in case something bad happens. For example, if there is a rush on Venmo and Paypal and your money cannot be obtained, you will most likely be out of luck.

Some consumers are unaware that the funds they have in their payment app account are uninsured

The CFPB says there are a few options Venmo and PayPal offer that will involve insuring your funds. For example, if you open a PayPal savings account through the company’s banking partner Synchrony Bank, the funds in that account would be covered by the FDIC. With Venmo, you may qualify for FDIC insurance if you deposit money into your account via direct deposit, use the “cash a check” feature, or use your Venmo account to purchase or receive certain cryptocurrency assets.

Funds you have stored on your payment apps like Venmo or PayPal are most likely uninsured - the US Finance Agency says if you have money in PayPal or Venmo, download it now

Funds you have stored on your payment apps like Venmo or PayPal are most likely uninsured

In its report, the CFPB wrote: “We find that stored funds may be at risk of loss in the event of financial hardship or bankruptcy of the entity operating the non-bank payment platform, and are often not placed in an account with a bank or credit union and lack of individual deposit insurance coverage. Consumers may not fully understand when, or under what terms, they would be protected by deposit insurance.”

Some payment apps make money by investing the funds you leave in those apps. Since they pay you no interest on this money, the interest they earn on the bonds and other debt they invest in goes directly to their profits. Payment apps that do this have no incentive to convince you to transfer your funds to the connected bank or credit union, leaving you with all the risk while they collect all the reward.

If you’re not sure if you’re covered, your best bet is to withdraw your funds and deposit them in an insured account until you can speak to someone in your payment app to check if your account is insured.

Funds stored in a payment app are at greater risk than funds deposited with an insured bank

While it is not possible to hold an insured balance in Google Pay, funds in Apple Pay are eligible for pass-through insurance if the customer registers their Apple Cash account with Green Dot Bank. Note that the CFPB states that funds held in a payment app are at a higher risk of loss than if the funds were held in an insured bank account or credit union.

As the agency states, “Funds stored in a payment app can present a significantly higher risk of loss to a consumer than if they are stored in a secured bank or credit union account. For example, non-bank payment apps that invest customer funds in securities or other non-deposit products expose the company to default risk if the value of the investments declines. Companies are also exposed to risk if customers request their funds all in once.”

The CFPB is simply trying to warn you, not scare you. “Consumers should be aware of these risks if they choose to leave a balance on these non-bank payment apps. To minimize these risks, consumers can choose to transfer their non-bank payment app balances to their deposit accounts federally insured, where they have a direct relationship with an FDIC-insured bank or an NCUA-insured credit union,” it said in its report. You may want to follow the agency’s advice as soon as possible.

#Finance #Agency #cash #PayPal #Venmo

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