In recent times, cashless payment alternatives have witnessed a significant surge in popularity among consumers for both spending and, in certain instances, storing their funds. In 2022 alone, a remarkable three-quarters of adults in the United States embraced payment apps like Venmo, CashApp, Apple Cash, or Zelle, as reported by the Consumer Financial Protection Bureau. These apps offer undeniable ease and convenience, yet there are underlying risks. While financial experts recognize their advantages, some caution that keeping money in these apps may not be without peril. Consumers might miss out on the interest they could earn by choosing a savings account instead.

CFPB's Insights on Cashless Payment Apps

CFPB Director Rohit Chopra emphasized in a release that popular digital payment apps are increasingly being used as substitutes for traditional bank or credit union accounts. However, these apps lack the same level of protection to guarantee the safety of funds. The CFPB found that funds stored in these apps typically do not have deposit insurance. In contrast, insured banks safeguard depositors' funds up to at least $250,000 in the event of a bank failure. Credit unions also offer similar protection.

Transferring Funds for Insurance

It is crucial to note that funds stored in payment apps are not typically insured until they are transferred back into an FDIC-insured bank or credit union. This highlights the importance of understanding the insurance coverage and taking appropriate actions to ensure the safety of funds.

Loss of High Interest Yields

Another aspect to be aware of when using payment apps is the potential loss of high interest yields. Some payment app companies have the ability to invest users' funds and generate returns on those investments. However, they offer no interest on the users' balances. Courtney Alev, a consumer advocate at Credit Karma, pointed out to the Associated Press that leaving money idle in these accounts means missing out on the potential interest from a high-yield savings account. Over time, this can have a significant impact on the growth of one's money. These apps may seem convenient, but it is essential to consider the long-term financial implications.

Comparing Cashless Payment Apps with Traditional Accounts

When comparing cashless payment apps with traditional bank or credit union accounts, several differences become evident. Traditional accounts often offer more comprehensive financial services and a higher level of security. They provide access to various savings and investment options, as well as protection through deposit insurance. On the other hand, cashless payment apps focus primarily on facilitating quick and convenient transactions. While they offer ease of use, they may not provide the same level of financial stability and growth opportunities. Consumers need to carefully evaluate their financial goals and needs when deciding which option to choose.