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Should you keep money in Venmo or PayPal? Consumer protection agency says do this instead

The Sum News

Have you been keeping money in your Venmo account?

The Consumer Financial Protection Bureau is recommending you don’t. CFPB instead suggests transferring funds out of digital payment apps after finding money stored there could be at risk in a financial crisis, according to an analysis.

It’s because money stored on digital payment apps may not be insured.

Apps like PayPay, Venmo and Cash App have grown quickly in the last few years. More than three quarters of adults (and 85% of consumers ages 18 to 29) have used a payment app. Transactions across these services was around $893 billion in 2022. By 2027, they’re expected to reach $1.6 trillion.

A lot of people just keep that money in those accounts without transferring it to a bank. It’s not clear just how much since these companies don’t report detailed data on stored balances, but the CFPB estimates billions.

Your money might not be safe there.

Companies might hold and invest funds that aren’t automatically transferred to a linked bank account. Your money isn’t necessarily stored in an insured account, meaning it’s not backed by the Federal Deposit Insurance Commission (FDIC), which protects up to $250,000.

That insurance kicked in for customers of the three large banks that experienced a run on the bank: Silicon Valley Bank, Signature Bank and First Republic Bank. That same protection isn’t guaranteed on nonbank apps.

Plus, user agreements often don’t tell you where your funds are going or what happens to your money if the company fails.

“As tech companies expand into banking and payments,” CFPB director Rohit Chopra said in a statement, “the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to.”

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