No, most payment apps are not federally insured

Millions of people use popular peer-to-peer payment (P2P) apps, like Cash App, PayPal or Venmo, to conveniently send and receive money from their friends and family.

Typically, after a person receives money on a payment app, they can either transfer the funds to their bank account or leave the cash in their payment app account.

But the Consumer Financial Protection Bureau (CFPB) says people should avoid storing their money in payment apps because it may not be safe during a financial crisis. Recent online searches show that some people want to know if this is true.

THE QUESTION

Is money stored in peer-to-peer payment apps federally insured?

THE SOURCES

• Consumer Financial Protection Bureau (CFPB)
• Federal Deposit Insurance Corporation (FDIC)
• National Credit Union Administration (NCUA) 
• The Ascent, a personal finance service by The Motley Fool
• Cash App
• PayPal
• Venmo
• Financial Technology Association (FTA)

THE ANSWER

No, money stored in most peer-to-peer payment apps is not federally insured. 

WHAT WE FOUND

Money stored in most peer-to-peer payment (P2P) apps lack federal deposit insurance coverage. That’s why the Consumer Financial Protection Bureau (CFPB) and The Ascent both recommend transferring your funds to an insured bank or credit union instead of leaving your money on a payment app.

In a June 1 consumer advisory, the CFPB warned that payment apps, like Cash App, PayPal and Venmo, do not have federal deposit insurance coverage through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). Both the FDIC and NCUA protect deposits up to $250,000 per individual depositor at insured banks and credit unions.

This means if a person’s insured bank or credit union fails, they will still have quick access to their money because it is covered by deposit insurance. On the other hand, the CFPB says any cash stored in a payment app account could be lost or difficult to retrieve if the company goes out of business or files for bankruptcy.

“If payment apps like Venmo and PayPal make your life easier, you should continue to use them. But it's essential to ensure you're not storing extra cash in these accounts. Instead, move your extra money to your bank account,” The Ascent says on its website.

Some payment apps claim to provide “pass-through insurance” to customers who sign up for additional services, such as a company-branded debit card like Cash App’s Cash Card. To be eligible for pass-through insurance, the account must comply with certain rules and regulations set by the FDIC or NCUA, according to the CFPB.

“Pass-through insurance means you are insured against the failure of the bank or credit union where the app holds the money for you. It doesn’t insure you against the failure of the payment app company,” the CFPB explains. Cash App, PayPal and Venmo also make this clear on their websites.

The Financial Technology Association (FTA), a trade group that represents PayPal and Cash App’s parent company Block, points out that users can sign up for additional services that may provide protection. These services often partner with a bank, which has its own FDIC insurance.

“These accounts are safe and transparent, with users receiving FDIC insurance on their accounts depending on the products they use,” an FTA spokesperson told VERIFY. 

To determine if your bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank or use the FDIC's BankFind tool.

All federally insured credit unions must prominently display the official NCUA insurance sign at each teller station inside a branch. Click here to see if your credit union is NCUA-insured.