Mobile payment apps like Venmo, PayPal, and Cash App have gained popularity in recent years.  (Photo: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)

Mobile payment apps like Venmo, PayPal, and Cash App have gained popularity in recent years. (Photo: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)

Mobile payment apps like Venmo, PayPal, and Cash App have gained popularity in recent years. More than three-quarters of Americans have used these types of apps to send or receive money from other people.

However, despite the convenience and growing use of P2P apps, there are also risks that you should be aware of. In particular, the Consumer Financial Protection Bureau (CFPB) warns consumers that storing cash on apps like PayPal, Cash App, and Venmo is a habit you should avoid.

A peer-to-peer (P2P) payment app is a type of digital payment platform that allows you to transfer money to another person using a mobile device or computer. When you sign up for a P2P service, you start by connecting your bank account, credit card, or digital wallet. From there, you can send or receive money to other users who are registered in the same P2P service.

Depending on the P2P payment app, you may have to pay a fee when sending money. Other services may charge you fees to transfer funds to your bank account, especially if it is an international transfer. However, many P2P apps offer free payment options to send money between friends and family. Non-expedited domestic bank transfers may also be free, depending on the application.

Peer-to-peer (P2P) payment apps are a very easy way to pay money you owe a friend or family member.  Photo: Getty Images. Peer-to-peer (P2P) payment apps are a very easy way to pay money you owe a friend or family member.  Photo: Getty Images.

Peer-to-peer (P2P) payment apps are a very easy way to pay money you owe a friend or family member. Photo: Getty Images. (d3sign via Getty Images)

Despite their popularity and usefulness, P2P payment apps are not safe places to store money. Loading cash into apps or keeping money there after receiving funds from another user could put your money at risk.

However, according to the CFPB, consumers are storing billions of dollars in payment apps like these. However, this choice could be problematic for several reasons.

  1. Lack of federal deposit insurance: When you use a non-bank payment app, the money you hold doesn't have the benefit of federal deposit protections. In contrast, if you transfer your money to an account at an FDIC member bank or NCUA member credit union, your funds should be protected up to the federal limit, even in the event of a bank failure.

  2. Unclear user agreements: Digital payment apps don't always have clear user agreements to detail what would happen to customers and their money if the company goes bankrupt.

  3. P2P apps can invest funds with less supervision– Companies that own P2P applications often choose to invest the funds that customers store in their accounts. But as non-banking companies, these companies do not receive the same supervision as other financial institutions. So the investments made by non-bank P2P companies could, at least in theory, be subject to more risks.

The Cash App is one of the best-known payment applications between people in the United States.  (Photo: Nikolas Kokovlis/NurPhoto via Getty Images)The Cash App is one of the best-known payment applications between people in the United States.  (Photo: Nikolas Kokovlis/NurPhoto via Getty Images)

The Cash App is one of the best-known payment applications between people in the United States. (Photo: Nikolas Kokovlis/NurPhoto via Getty Images) (NurPhoto via Getty Images)

As mentioned, saving money on apps like Venmo, PayPal, Cash App, and others could put your money at risk. However, there is also another drawback that you should be aware of. When you keep money in these types of applications, you do not have the ability to earn interest on your savings.

If you're looking for a safe place to store extra money, you may want to consider one of the following alternatives instead.

Whether you're transferring money from a P2P app or looking for a place to save each month, a high-yield savings account (HYSA) could be a good option. These types of deposit accounts are available at both banks and credit unions. Therefore, it is easy to look for financial institutions that offer FDIC or NCUA insurance to protect your deposits up to US$250,000 (per depositor, per property category).

Additionally, HYSAs allow you the flexibility to withdraw or deposit money into your account as needed. However, keep in mind that your financial institution may limit the number of withdrawals allowed per month.

If you shop around, it's often possible to find competitive interest rates on high-yield savings accounts. According to the Federal Deposit Insurance Corporation, the average annual percentage yield (APY) on a traditional savings account is 0.46% as of April 15, 2024. However, the best accounts High-yield savings banks offer APYs that far exceed the national average.

Instead of keeping your money in a P2P app, it's often better to transfer any extra money you have to a bank account right away. If you do not yet have a checking account or checking accountas they are known in the United States, it may be worth considering opening one that pays you interest.

In general, most people use checking accounts for spending and bill payments rather than saving. As a result, checking accounts are not typically known for their interest earning potential. However, there are certain types of checking accounts, called interest-bearing checking accounts or high-yield checking accounts, that often pay higher APYs to customers.

In addition to higher APYs, most interest checking accounts come with the same capabilities as a regular checking account, such as check writing privileges and the ability to use a debit card. Keep in mind that some interest-bearing checking accounts may also have higher monthly maintenance fees. So, depending on your priorities, you might also look into free checking accounts or look for banks that offer fee waivers.

If you have a specific amount of money you want to set aside for a short-term savings goal, a certificate of deposit is another option that could work for you. With a CD, you deposit a specific sum of money at a bank or credit union. Those funds then remain with the financial institution for a fixed period of time.

In exchange for agreeing not to withdraw your savings until the end of the CD term, your bank or credit union will give you a fixed interest rate that doesn't fluctuate with the market. If you decide to withdraw money from your account early, you will typically have to pay an early withdrawal penalty which could cost you some or even all of your interest earnings depending on the terms of your agreement.

The best CD rates are often (but not always) more attractive than the interest rates available on other types of deposit accounts. However, exact rates may vary depending on the term of your CD and other factors. Therefore, it is always important to compare multiple offers. And, again, you should be sure to select a bank or credit union that offers federal deposit insurance to protect your money.

Regardless of which banking alternative you choose, it's important to move your money outside of P2P apps on a regular basis. When you transfer your cash from a P2P app to any federally insured deposit account, you can at least rest assured that your money is safe.

If you use P2P apps frequently, try to make a habit of checking your balances several times a month to make sure you don't have forgotten balances on your accounts. You can add this task to your monthly financial checklist, perhaps when you update your budget or review your credit card statements. Or consider setting a reminder on your smartphone so you don't forget.

written article originally in english by Michelle Black.

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