3 Reasons Not to Keep Money in Payment Apps
Money transfer apps, like CashApp, Venmo, and others, are super convenient for sending money from one person to another. They make splitting a bill, paying for lunch, or borrowing a few bucks from a friend a breeze. But according to research by Cornerstone Advisors, over a third of Millennials and a third of Gen Z respondents said their primary checking account was with a digital bank or financial technology company (fintech). We care about peoples’ financial well-being, and here’s why that statistic stresses us out.
They Aren’t Insured
You’ve probably heard or read “federally insured by NCUA” or “insured by MSIC” – you’ll see phrases like these all over the Jeanne D’Arc website. The National Credit Union Association (NCUA) is the federal agency that operates the National Credit Union Share Insurance Fund (NCUSIF), and it insures your deposits up to $250,000. The purpose of this insurance is to prevent financial catastrophes like 1929’s stock market crash from happening and wiping out peoples’ life savings. In Massachusetts, the Massachusetts Share Insurance Corporation (MSIC) insures deposits above the NCUSIF’s $250,000 limit.
Some digital banks are entirely legit and insured this way, but fintech is a rapidly growing and changing industry and many new fintech companies partner with financial institutions to provide “Banking-as-a-Service” (BaaS). BaaS is not the same as traditional banking, and these companies are not FDIC-insured, though their partner financial institutions might be. Because they are not a bank or credit union, they are not held to the same regulatory standard, leaving a gap consumers can fall into.
So what does that mean for you? One of the biggest risks with leaving money in an account with one of these BaaS companies is that they aren’t regulated or insured the same way credit unions, banks, and other financial institutions are. If you leave money sitting in one of these uninsured person-to-person (P2P) services or BaaS platforms, there’s a chance you could lose that money and have no recourse for getting it back. Keeping your money in an account somewhere with deposit insurance coverage means that you’re protected from financial disaster.
They Lack Consumer Protections
Users are not covered in the case of purchases that are authorized. That might not sound like a big deal, but many financial crimes are scams that trick unwitting users into authorizing money transfers under false pretenses. For example, if a person tells you that they’re from the IRS and you need to send them $500 in back taxes to avoid arrest and you send it to them, that is technically authorized and you’d be on the hook. Take great care in ensuring that you know who you are sending funds to and never share access to your
They Don’t Earn Interest
When you leave money sitting in one of these accounts, not only is it not protected, you’re also leaving any earning potential on the table. It’s important to save even a little bit as early as possible, so not leveraging your hard-earned money is a waste of a great opportunity. Instead, transfer your funds to an insured account that pays interest.
If you’re unsure how much you can reasonably save each month or need a helping hand getting started, you can request a free financial health assessment with a NFCC-certified Financial Wellness Expert from our trusted partner, GreenPath. Their professional, caring coaches will work with you to assess your situation, explain the options or solutions available, and help you create a plan to meet your goals.
