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Gone are the days when you had to scramble for cash to pay back a friend or family member. But how you use your favorite peer-to-peer payment app might not be the smartest choice for your financial health.
According to a recent survey by NerdWallet, about 80% of Americans use mobile payment apps. Of these, two-thirds reported maintaining a balance within their apps. Surprisingly, 46% of them keep over $100 in their accounts, and the average balance users let build up before withdrawing is $287.
$287! Can you imagine what you could do with that? It's enough to cover your monthly student loan payment, make a car payment, or even treat yourself to 22 movie outings (or 11 if you're taking someone along).
The money doesn’t sit there forever—half of those surveyed said they withdraw funds at least once a month, and only 6% admitted to never cashing out.
If we were talking about a traditional bank account, this wouldn’t be an issue. But we’re not.
NerdWallet highlights that bank accounts are FDIC insured, meaning if your bank collapses, the government steps in to protect up to $250,000 of your balance.
Mobile payment apps don’t offer that kind of protection.
Sure, Venmo and its parent company PayPal have been around long enough that a sudden shutdown seems unlikely. Cash App, operated by Square, has been in business for 10 years. Zelle, owned by several banks, still carries a service agreement that leaves them with no liability for your money. Mobile payment apps are tech companies, not financial institutions, and they don't have the same commitment to safeguarding your funds.
Aside from the lack of accountability these apps have for your funds, you're also harming your own financial situation by keeping money in them. While it’s convenient, it could lead to budget problems down the line.
And if you’re not using that money for immediate expenses, you're missing out on the opportunity to earn interest. While high-yield savings account APYs aren't incredibly high at the moment, even earning 1% on your $287 is better than letting it sit idle in an unsecured payment app.
Sure, there’s a certain thrill when you log into your payment app and 'find' extra cash. But holding that money in a real bank account gives you a clearer picture of your cash flow and helps you plan for the future.
It’s fun to stumble upon 'bonus' money in your Venmo account, but you could better use that cash by putting it into savings, paying off debt, or just leaving it in your bank account for when you really need it.
This article has been updated to clarify that the FDIC covers you in case of a bank failure, but does not step in for fraud-related issues.
