If you’re storing your cash in a digital payment app like Venmo, PayPal or Cash App, you may want to move that money elsewhere. That’s according to a report from the Consumer Financial Protection Bureau issued on Thursday that highlights the financial dangers these apps pose to consumers because of 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.
Since 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 over 75% of US adults who use these apps could lose the funds they keep there during financial distress, the CFPB explained in a press release.
In 2022 alone, transaction volume across all digital payment app service providers was around $893 billion, the release states.
“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,” said CFPB Director Rohit Chopra 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 it handles your money.
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 FDIC-insured, too.
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