If you keep your money in a digital payment app like Venmo, PayPal, or Cash App, you may want to move that money elsewhere. That’s according to the Consumer Financial Protection Bureau, which on Thursday issued a report highlighting the financial dangers these apps pose to consumers because of the lack of federal deposit insurance.
The CFPB named several major financial institutions, including Silicon Valley Bank, Signature Bank and First Republic Bank, that earlier this year suffered bank pressures that put the money of individuals and businesses at risk.
Because money stored in payment apps may not be held in Federal Deposit Insurance accounts (coverage that protects your money in the event of a bank failure), over 75% of US adults who use these apps , can lose the funds they keep there during times of financial distress, the CFPB explained in a press release.
In 2022 alone, the transaction volume across all digital payment application service providers was around $893 billion, it said.
“Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account, but they lack the same protections to ensure funds are safe,” CFPB Director Rohit Chopra said in the release.
Along with not having a backup in case of financial turmoil, the apps can also hold and invest the funds you keep in them without the same regulatory oversight as insured banks or credit unions, the CFPB said. What’s more, the user agreements for these apps usually lack clarity and specification about how your money is handled.
Instead of digital payment apps, consider keeping your money in a high-yield savings account that secures your funds and gives you the highest interest rate on your money. Make sure this account is also FDIC insured.
See also: Best Current Accounts for June 2023