![]() ![]() Linked debit card, credit card or bank account PayPal funds, credit, debit card, bank transfers and rewards balanceīank transfer, direct deposit, check cashingĬheck cashing, direct deposit, cash deposit at participating locations and bank transferįees for sending money using bank transfer or your account balance Venmo funds, credit, debit card and bank transfers GOBankingRates weighed their features to find how they differ: Feature Venmo and PayPal are both great tools when you need to send and receive money. Still, there could be risks, like delaying your ability to access your money.Venmo vs. If the payment app company followed all the relevant requirements, though, your money could be safe in the associated bank or credit union. This means there could be a risk of losing your money in the event the company fails. It doesn’t insure you against the failure of the payment app company. Pass-through insurance means you are insured against the failure of the bank or credit union where the app holds the money for you. To be eligible for pass-through insurance, the account must comply with certain rules and regulations set by the FDIC or NCUA. For example, you might have to get a company-branded card or choose direct deposit. Some apps may claim to provide pass-through insurance through business arrangements with a bank or credit union for customers who sign up for additional services. Some apps offer “pass-through” insurance, if you take additional steps You might be standing in line with other lenders to the failed app, waiting to see if you can get any of your money back after the business is unwound. If the nonbank payment app’s business fails, your money is likely lost or tied up in a long bankruptcy process. If your bank or credit union fails, you still have quick access to your money. The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) protect deposits up to $250,000 under the same owner or owners. In contrast, money you deposit in an account at an insured bank or credit union is protected up to the insurance limit if the firm fails. It might not explain whether and under what conditions your money may be insured at a bank or credit union, and what happens in the case of the nonbank payment app’s business failure or bankruptcy. Your user agreement might be confusing, murky, or even silent on exactly where your money is held or invested. The payment app’s business could be at risk from investment losses, interest rate changes, currency exchange rates, and liquidity problems. The company can earn money on these investments, while generally paying no interest to you. Your payment app company might invest your money in loans and bonds, instead of keeping the money in a bank or credit union account. When you consider the worst-case scenario, you might wonder: What if the payment company holding my money goes out of business or fails? If a payment app’s business fails, what happens next is often unclearĪpps can be set up in different ways, with different business models, investment strategies, and risks. ![]() However, deposit insurance does not apply when a nonbank payment company fails. The difference is key because money you keep in your bank or credit union account is insured if the bank or credit union fails. ![]() This means it might not offer federal deposit insurance. ![]() However, the difference is that the money in your app might not be held in an account at an FDIC member bank or NCUA member credit union. You can check your balance and review transactions, just as you might do with online banking. Keeping money inside your nonbank payment app might feel the same as a keeping money in a traditional bank account with deposit insurance. In fact, money you receive generally stays in your payment app account until you connect to the app and move the money to your linked account. They also let you store money inside the app. Nonbank payment apps help you move money into and out of a linked bank account, credit union account, or card account. Money stored in nonbank payment apps often is not protected by federal deposit insurance According to a March 2022 survey by Consumer Reports, 85 percent of consumers aged 18 to 29 have used one of these apps. Young adults use payment apps even more frequently. The apps can be used on a computer or mobile device to send money to someone else without writing a check or handing over cash. Widely used nonbank payment apps include PayPal, Venmo, and Cash App. More than three quarters of adults in the United States have used a payment app, sometimes called a P2P (peer-to-peer or person-to-person) app. ![]()
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