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This week on Reddit: Should you open a PayPal Savings account?
Welcome to This Week on Reddit, our weekly series that answers redditors’ biggest banking questions. Each week, our editors choose an interesting and relevant user question to examine. Read on for our expert analysis.
Choosing the right savings account can be difficult, especially when interest rates are fluctuating day to day and new account options are popping up on the market all the time.
One savings account in particular that caught the eye of one redditor is the PayPal Savings account. Featuring a high interest rate and other perks, they’re wondering if it’s worth opening an account. Let’s take a closer look.
Is the PayPal savings account worth it, according to Reddit?
A user by the name of Asap_jay44 recently asked the following question about PayPal’s high-yield savings account:
Certain users immediately rejected this idea, claiming that PayPal is not FDIC-insured. Others suggested that there are other underlying issues with PayPal and that this user should consider alternative savings accounts.
“Biggest issue with PayPal is their customer service. Lack of consistency. Ranging from great to terrible. Customer service reps usually read from scripts, but may not understand the problem, possibly improvise, and/or even make stuff up. You're right to be concerned. Very impersonal experience with no physical branches to visit,” wrote user ronreadingpa in response.
Another user named ishootthedead responded with, “I care about protecting my money so using PayPal is a hard pass.”
On the other hand, user insuranceguynyc (correctly) pointed out that PayPal is not actually a bank, and the savings account it offers is actually fulfilled by Synchrony Bank.
So what’s the truth? Is the PayPal Savings account worth considering or is it a bad idea?
Our expert take
First, let’s start with the question of whether your money is safe in the PayPal Savings account.
It’s important to note that PayPal is a financial technology (fintech) company, not a bank. Therefore, it is not covered by the FDIC. But that doesn’t mean the money held in a PayPal Savings account is not insured.
Should you decide to open a PayPal Savings account, your money would be held at Synchrony Bank, an FDIC-insured institution. This means that your savings account deposits are insured up to the federal limit of $250,000 per depositor, per institution, per ownership category.
This is typical of bank accounts offered by fintechs. These companies often partner with banks so that deposits are guaranteed by the FDIC. However, before putting your money in a financial platform or app, you should always verify that deposits are insured by reading your account’s terms and disclosures. You can also use the FDIC’s BankFind tool to search for your fintech’s partner bank and verify insurance coverage.
Read more: What is fintech?
That said, money in your PayPal Balance account (formerly known as PayPal Cash) is not protected. These funds are not meant to be stored long-term like a savings account, and are instead there to spend or transfer. So you shouldn’t keep money there for an extended period.
Read more: Is it safe to store money in apps like Venmo, PayPal, and Cash App?
It’s also important that you do your part as an account holder to keep your account secure. This includes using a unique and hard-to-guess password and changing it periodically. You should also set up multi-factor authentication for an added layer of security and sign up for account alerts so you’re notified each time there’s a new transaction or any suspicious account activity.
Now for the other big question: Is the PayPal savings account actually good?
PayPal’s savings account is currently offering an attractive 4.10% APY, which is more than nine times the national average rate for savings accounts. There are also no minimum balance requirements or fees associated with the account. Plus, you can earn interest on your PayPal cash-back rewards by transferring them from your Balance to your Savings account.
While 4.10% APY is an attractive rate, it’s not the only savings account available that offers over 4%. Here are some examples:
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EverBank Performance Savings Account: 4.75% APY
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Bask Interest Savings Account: 4.65% APY
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CIT Bank Platinum Savings: 4.55 APY
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BMO Alto Online Savings: 4.45% APY
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TAB Bank Save Account: 4.37% APY
Further, the PayPal Savings account comes with some restrictions that may make it a less attractive option than other accounts with similar rates. You can read our full review of the PayPal Savings account here.
And to circle back to one commenter’s point, savings account interest has been on the decline since the Fed began cutting rates this year. There’s no telling how and when savings account rates will change, but it’s almost certain they’ll keep dropping into next year.
In summary, the PayPal Savings account is a decent option if you’re a frequent PayPal user and want to earn a competitive rate on your savings balance. But is it the best option? That depends on your banking habits and preferences.
If you're concerned about PayPal's security or reputation, you could always open an account directly with Synchrony and earn the same rate. And there are certainly several accounts out there that offer similar features and better rates — at least, for now.
Read more: Is ‘rate chasing’ worth it?
