Mobile payment apps such as Venmo, PayPal, and Cash App have grown in popularity in recent years. More than three-quarters of Americans have used these types of apps to send or receive money from individuals.

Yet despite the convenience and growing use of P2P apps, there are risks you should be aware of as well. In particular, the Consumer Financial Protection Bureau (CFPB) warns consumers that storing cash in apps like PayPal, Cash App, and Venmo is a habit you should avoid.

What are P2P payment apps, and how do they work?

A peer-to-peer payment app is a type of digital payment platform that allows you to transfer money to another individual using a mobile device or computer. When you register for a P2P service, you start by connecting your bank account, credit card, or digital wallet. From there, you can send or receive cash to other users who are registered with the same P2P service.

Depending on the P2P payment app, you may incur fees when you send money. Other services may charge you fees to transfer funds to your bank account — especially if an international transfer is involved. Many P2P apps, however, offer free payment options for sending cash between friends and family members. Non-expedited domestic bank transfers may be free as well, depending on the app.

Is it safe to keep money in P2P payment apps?

Despite their popularity and usefulness, P2P payment apps aren’t safe places to store money. Loading cash onto the apps or keeping money there after you receive funds from another user might put your money at risk.

Even so, according to the CFPB, consumers are storing billions of dollars in peer-to-peer payment apps. However, this choice could be problematic for several reasons.

1. Lack of federal deposit insurance: When you use a nonbank payment app, the money you store doesn’t have the benefit of federal deposit protections. By contrast, if you transfer your money to an account at an FDIC member bank or an NCUA member credit union, your funds should be protected up to the federal limit, even in the event of a bank failure.

2. Unclear user agreements: Digital payment apps don’t always have clear user agreements to detail what would happen to customers and their money in the event of company failure.

3. P2P apps may invest funds with less oversight: Companies that own P2P apps often choose to invest the funds customers store in their accounts. But as nonbanks, these businesses don’t receive the same oversight as other financial institutions. So, the investments that nonbank P2P companies make could, at least in theory, be subject to more risk.

Alternative places to store your extra cash

As mentioned, storing money in apps such as Venmo, PayPal, Cash App, and others could put your money at risk. Yet there’s another downside you should be aware of as well. When you keep money in these types of apps, you don’t have the ability to earn interest on your savings.

If you’re looking for a safe place to store extra cash, you may want to consider one of the following alternatives instead.

High-yield savings account

Whether you’re transferring money from a P2P app or looking for a place to save each month, a high-yield savings account (HYSA) could be a good fit. These types of deposit accounts are available from both banks and credit unions. So, it’s easy to search for financial institutions that offer FDIC insurance or NCUA insurance to protect your deposits up to $250,000 (per depositor, per ownership category).

Additionally, HYSAs allow you the flexibility to withdraw or deposit money from your account as needed. However, keep in mind that your financial institution may limit the number of withdrawals allowed per month.

If you shop around, it’s often possible to find competitive interest rates on high-yield savings accounts as well. According to the Federal Deposit Insurance Corp., the average annual percentage yield (APY) on a traditional savings account is 0.46% as of April 15, 2024. Yet the best high-yield savings accounts offer APYs that far exceed the national average.

Interest checking account

Instead of keeping your money in a P2P app, it’s typically better to transfer any extra cash you have to a bank account right away. If you don’t already have a checking account, opening one that pays you interest may be worth considering.

In general, most people use checking accounts for spending and paying bills rather than saving. As a result, checking accounts aren’t typically known for their interest-earning potential. Yet there are certain types of checking accounts — called interest checking or high-yield checking accounts — that often pay out higher APYs to customers.

On top of higher APYs, most interest checking accounts come with the capabilities of a regular checking account, such as check-writing privileges and the ability to use a debit card. Keep in mind that some interest checking accounts may also feature higher monthly maintenance fees. So, depending on your priorities, you could also search for free checking accounts or look for banks that offer fee waivers.

Read more: The best checking account bonus offers and promotions today

Certificate of deposit (CD)

If you have a specific amount of money you want to set aside for a short-term savings goal, a certificate of deposit is another option that might work for you. With a CD, you deposit a specific sum of money with a bank or credit union. Then, those funds remain with the financial institution for a fixed period of time.

In exchange for agreeing not to withdraw your savings until the end of the CD’s term, your bank or credit union will give you a fixed interest rate that does not fluctuate with the market. If you decide to withdraw money from your account early, you’ll typically have to pay an early withdrawal penalty that could cost you a portion or even all of your interest earnings depending on the terms of your agreement.

The best CD rates are often (though not always) more attractive than the interest rates available on other types of deposit accounts. However, exact rates can vary based on your CD term and other factors. So, it’s always important to compare multiple offers. And, again, you should be sure to select a bank or credit union that offers federal deposit insurance to protect your money.

Bottom line

No matter which banking alternative you choose, it’s important to move your money out of P2P apps on a regular basis. When you transfer your cash from a P2P app to any federally insured deposit account, you can at least rest assured that your money is safe.

If you use P2P apps often, try to make a habit of checking your balances a few times a month to make sure you don’t have any forgotten balances lingering in your accounts. You can add this task to your monthly financial checklist, perhaps when you update your budget or review your credit card statements. Or consider setting a reminder on your smartphone so you won’t forget.