Stop storing money in payment apps: here’s why

In recent years, cashless payment options have become a popular option for consumers to spend their funds, and in some cases, store them.

In 2022 alone, more than three-quarters of U.S. adults used payment apps such as Venmo, CashApp, Apple Cash or Zelle, according to the Consumer Financial Protection Bureau.

While financial experts acknowledge the ease and convenience of these apps, some warn that storing money in these apps can be risky—and consumers are missing out on interest they could have earned if they had chosen a savings account.

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“Popular digital payment apps are increasingly being used in place of traditional bank or credit union accounts, but they lack the same protections to ensure the safety of funds,” CFPB Director Rohit Chopra said in a press release.

The CFPB found that funds held in these applications often do not have deposit insurance, noting that insured banks protect depositors from losing up to at least $250,000 of their deposits if the bank fails.

Credit unions offer similar protection.

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While funds held in payment apps may resemble an escrow account, they are typically not insured until they are transferred back to an FDIC-insured bank or credit union.

Another thing to keep in mind when using payment apps is the loss of high interest earnings.

Some payment app companies may invest user funds and make money on those investments without offering any interest on user balances, the CFPB notes.

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“By leaving money in these accounts, you’re leaving potential interest from a high-yield savings account on the table,” Courtney Alev, a consumer advocate at Credit Karma, told The Associated Press.

“All that interest adds up over time, so your money can grow elsewhere.”