You may want to move the money you’ve got stored in Venmo, PayPal or Cash App. The Consumer Financial Protection Bureau on Thursday issued a report highlighting the financial dangers digital payments apps pose to consumers due to a lack of federal deposit insurance.
The CFPB pointed to several major financial institutions, including Silicon Valley Bank, Signature Bank and First Republic Bank, that experienced a bank run earlier this year that jeopardized the money of individuals and businesses.
The money that’s stored on payment apps might not be held in accounts with federal deposit insurance, coverage that protects your money in the event of a bank failure, the CFPB explained in a press release. So in the event of a financial crisis, the more than 75% of US adults who use these apps could lose the funds they keep there.
In 2022 alone, transaction volume across all digital payment app service providers was around $893 billion, the release says.
“Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” CFPB Director Rohit Chopra said in the release.
Alongside their lack of backup in the event of financial turmoil, the apps can also hold and invest the funds you store in them without the same regulatory oversight as insured banks or credit unions, the CFPB said. What’s more, the user agreements on these apps tend to lack clarity and specification on how they handle your money.
Venmo, PayPal and Cash App didn’t immediately respond to a request for comment.
Instead of digital payment apps, consider keeping your money in a high-yield savings account that secures your funds and gives you the highest interest rate on your money. Make sure that account is insured by the Federal Deposit Insurance Corp., or FDIC, too.
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