Don’t Keep a Balance in Your Venmo Account
The days when you had to scoop up money for a friend or family member are long gone. But the way you use your favorite peer-to-peer payment app might not be the best solution for your finances.
About four in five Americans use mobile payment apps, according to a new NerdWallet poll. And two-thirds of payment app users said they kept their balance in their payment apps. As much as that may surprise you: 46% said they had more than $ 100 in their account. And what is the average of how high level users will allow their balance to be withdrawn before withdrawing it? 287 dollars.
287 dollars! Do you know what you can do with $ 287? You can make a monthly student loan payment. $ 287 is a car payment. That’s 22 going to the movies (11 for a date).
This money does not stay there forever – half of the respondents said that they cash out at least once a month, and only 6% said they never withdraw money.
If we were talking about a bank account, that’s okay. But this is not the case.
NerdWallet indicates that bank accounts are FDIC insured , which means that if your bank goes bankrupt, the government will cover up to $ 250,000 in your account.
You won’t get this with a mobile payment app.
Of course, Venmo and its parent company PayPal have been around for quite some time, so it’s unlikely they’ll suddenly close tomorrow. The Cash app is operated by Square, which has been around for 10 years. Zelle is owned by several banks, but it still has a service agreement that relieves it of any responsibility for your money and what happens to it when you use the app. Mobile payment apps are tech companies, not financial institutions, that have a vested interest in protecting your money.
Apart from the lack of responsibility these apps have for your money, you are also doing yourself a disservice by keeping your money here. In exchange for convenience, you risk ruining your budget.
And if you don’t need that money to cover your expenses this month, you are missing out on the chance to earn interest on it. The annual interest rate for high yielding savings accounts isn’t very exciting right now, but earning even 1% on his $ 287 would be better than letting him languish in an unsecured payment app.
Of course, logging into a payment app can speed up your search for money. But having this money in a real bank account can help you better forecast your cash flow and plan ahead.
It’s nice to find “funny money” in your Venmo account, but you can put that money in savings, use it to pay off debt, or just leave it in your bank account when you need it most.
This article has been updated to clarify that the FDIC provides coverage in the event of bank failures, but does not intervene in the event of fraud.