Why you shouldn't store your money in payment apps
More and more people are using payment apps to send and receive money
NEW YORK — Connor Tomasko grew up wary of credit cards. As she taught herself more about managing money, she realized that many people also have bad habits when it comes to payment apps.
Tomasko, 31, a freelance software consultant in Chicago, understands why people appreciate the ease of the apps, which typically only require you to know someone's username in order to send money. But she realized that keeping money in the apps could be risky and means losing out on the interest from a high yield savings account. She now immediately transfers any payments out of the apps and encourages friends to do the same.
“I’m definitely the one that is always harping about high yield savings accounts,” Tomasko said. “But if you’re in an industry dealing with a lot of cash — bartending, say — sometimes you’re just worried about finding a place to deposit it. It’s not always a fun thing to talk about.”
As use of payment apps has grown in recent years, the Consumer Finance Protection Bureau has issued guidance on best practices to avoid pitfalls. For example, funds stored on Venmo or Cash App typically lack the deposit insurance you'd get from a bank, except in certain cases.
“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 a bulletin last year.
In 2022, transaction volume on these apps was an estimated $893 billion, according to the CFPB, and that’s projected to reach $1.6 trillion by 2027. More than three-quarters of US adults say they have ever used one of four popular payment apps, according to a 2022
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