Never leave balance in cash payment apps

FILE - The Venmo app is displayed on an iPad on March 20, 2018, in Baltimore. Customers of...
FILE - The Venmo app is displayed on an iPad on March 20, 2018, in Baltimore. Customers of Venmo, PayPal and CashApp should not store their money for the long term with these apps because their funds might not be safe during a financial crisis, the Consumer Financial Protection Bureau warned on Thursday, June 1, 2023.(Patrick Semansky | AP Photo/Patrick Semansky, File)
Updated: Jun. 2, 2023 at 9:46 PM CDT
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MOBILE, Ala. (WALA) -If cash payment apps were to fail... would your money be safe? The Consumer Financial Protection Bureau is issuing a warning about the use of these popular forms of payment.

The agency says, keeping money in payment apps could make it vulnerable during a crisis.

Here’s what you may not know. Money in payment apps such as Venmo, Cash-app, and PayPal may not be covered by Federal Deposit Insurance.

You’ll remember hearing a lot about the FDIC during the failure of large systemically important banks such as Silicon Valley Bank, Signature Bank, and First Republic Bank. These banks experienced a run, but insured depositors could have confidence their money was safe.

Most banks are FDIC members, which protects up to $250,000 dollars per depositor; unlike nonbank payment apps. That means customers could be at risk of losing their money if the payment apps experience an event similar to recent major bank only some savings accounts through payment apps’ partner banks are likely to be insured.

Use of nonbank payment apps such as PayPal, Venmo, and Cash App have rapidly grown in the past few years. These apps allow people to quickly pay retailers and others, while providing the option to store funds. Unlike traditional bank and credit union accounts which have deposit insurance, funds stored in these nonbank payment companies may be unprotected.

The CFPB estimates transactions among peer-to-peer payment apps reached about $893 billion dollars in 2022, with 85% of people ages 18 to 29 preferring the easy to use applications.

The bureau says it will work with regulators to keep monitoring the payment app sector. But it’s up to watch your money. While not outright discouraging the use of these apps, it is encouraging users to immediately transfer money received in to an insured account, like a traditional bank.