Using payment apps is a good idea -- but don't store your cash there.
Payment apps make it easier to pay others and get paid yourself. Whether splitting a meal and drinks with a friend, reimbursing your roommate, or sending your sister money for her birthday, these apps make it simple to give someone money without the need to carry around cash. If you use these payment services, it's best not to keep money sitting in your accounts. Here's why you shouldn't keep your cash in payment apps like Venmo and instead should keep it in the bank.
Payment apps offer convenience
Payments apps like Venmo, Zelle, and Cash App can add convenience to your life. You can quickly send money to family and friends in minutes. There's no need to stop at an ATM for cash or write a check. It's also easier for others to pay you. Plus, users can exchange money easily while on the go -- whether they live locally or all the way across the country.
If you're a fan of technology and use apps regularly, you likely use services like this. But make sure you don't get into the habit of keeping money in your wallet or account balance. Here are a few reasons why storing cash in payment apps like Venmo is a bad money move.
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1. Payment app funds aren't FDIC insured
When you put your money in the bank, you can feel confident knowing that the Federal Deposit Insurance Corporation (FDIC) has your back. When you use an FDIC-insured bank account, up to $250,000 of your money is protected.
That means if something happens to the bank, the FDIC will reimburse you for any losses up to $250,000. The good news is most reputable banks offer FDIC-insured bank accounts -- so you can better protect your money by opening an account with this insurance.
Since most payment apps don't offer FDIC insurance, you won't have that same level of protection. If your payment app went under while you had funds sitting in the account, you might lose that money. Depending on your account balance at the time, that could be a pricey mistake.
2. It takes time to transfer money to your bank
You'll have to be patient if you need the money sitting in your Venmo account to cover a bill because transferring money from a payment app to your bank can take time. You'll be at a disadvantage if you have an urgent expense and need to access your funds quickly.
Many payment apps allow you to transfer your funds quickly if necessary, but they charge fees for this privilege. For example, Venmo charges a 1.75% fee for faster bank account or debit card transfers. Let's imagine you have $600 sitting in your Venmo account and do an instant bank transfer. You'll pay $10.50 in fees. Luckily, you can avoid getting into this kind of situation.
3. Your money won't earn interest
When you put your money in a savings account that earns interest, you can earn free money. Every extra cent earned in interest can make a difference in today's expensive world. However, you won't earn interest when you store your cash in payment apps.
Because of this, it's best to transfer extra funds from these accounts into an interest-earning savings account. Check out our best high-yield savings accounts list if you're looking for a way to boost your earnings. Current interest rates are competitive, so don't miss out.
Keep your extra money in the bank, not payment apps
If payment apps like Venmo and PayPal make your life easier, you should continue to use them. But it's essential to ensure you're not storing extra cash in these accounts. Instead, move your extra money to your bank account. By doing this, you can better protect your funds, have easy and quick access to your money, and earn interest.
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