Are You Making These 3 Costly Venmo Mistakes?

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Why Keeping a Big Balance in Venmo Is a Mistake

Venmo can be great for splitting bills, paying friends and family, and even making purchases. But if you’re keeping a large balance in the app, you’re making a mistake. Here’s why that’s risky, and the smarter place to keep your cash.

Your Money Isn’t as Secure as in a Bank Account

Regulatory grey zones are perhaps the biggest reason to avoid holding a large balance with Venmo. When you deposit money into a bank or credit union account, it’s almost always insured by the government. That means if the institution goes under, up to $250,000 of your funds for each ownership category (single account, joint account, retirement account, etc.) are safe and will be returned to you. As Venmo isn’t a bank or credit union, its accounts technically don’t offer the same protections.

Venmo funds are held in banks that have FDIC insurance, leading some people to assume their money is just as safe with the app as it is in a bank. However, that’s not entirely true. Venmo says FDIC protection is only extended to account holders who do one or more of the following:

• Set up a direct deposit
• Use a Venmo debit card
• Add money to their account using the Venmo cash-a-check feature
• Buy or receive cryptocurrency with their Venmo account

The fact that Venmo balances aren’t automatically FDIC insured, coupled with reports that it’s harder to dispute transactions and receive a refund from the app after being scammed or having your account compromised, has prompted experts to advise people to store their funds elsewhere.

“Venmo balances are not FDIC insured by default because Venmo is not a bank; for large sums, transfer to a federally insured bank account to ensure full protection,” said Prince Dykes, a financial advisor and the founder of Royal Financial Investment Group.

Your Venmo Balance Doesn’t Earn Interest

The other main reason not to park money in your Venmo account is that there’s no reward for doing so. You won’t get paid any interest, meaning you’re missing out on free money. Not only that, but every dollar sitting in your Venmo balance is losing value to inflation.

A better option is to transfer money you don’t immediately need to a high-yield savings account that offers a competitive interest rate. Many of these accounts currently pay 4% or more—and we make your research easy with our daily ranking of the top high-yield savings accounts. Once you have an account set up, transferring between it and your Venmo account is easy and usually takes just one business day.

In dollar terms, if you locked in a rate of 4%, compounding monthly, on a balance of $5,000, you’d end up with more than $100 in free money after just six months.

Venmo’s Credit Card Fee Can Cost More Than You Think

Most of the core services offered by Venmo are free. However, if you read the small print, you’ll see it’s not always wise to use all of the app’s features. That includes the option to pay with credit cards.

If you send money to someone in Venmo using a linked bank account or debit card, you’ll be charged nothing. Conversely, if you use a credit card, the fee is 3%. Paying $3 on every $100 transferred might not sound like much, but it can quickly add up.

That’s one reason not to use a credit card with Venmo. Another is that these payments don’t usually earn points or miles. If you use your credit card to send money through the app, you’ll likely get nothing in return, as most credit card issuers treat these transactions as a cash advance rather than a purchase.

Instant Transfers Add Up to a Hidden Venmo Cost

Another cost that can add up is the fee for choosing an instant transfer. Venmo is celebrated for being quick at sending money. However, if you want funds to reach the recipient within 30 minutes, you’ll be charged 1.75% of the amount transferred.

This fee is deducted from your transfer amount and is capped at a minimum of 25 cents and a maximum of $25. In other words, if you instant transfer $10, applying 1.75% would amount to 18 cents. But given the stipulated minimum fee, you’ll be charged 25 cents. At the other end, if you send more than $1,428.57, the fee will be capped at $25.

Standard transfers, in contrast, are completely free. They won’t reach the recipient immediately, but they often take just a day to complete—or slightly more if it’s the weekend or a public holiday. So when your payment doesn’t need to be instant, opting for a standard transfer is a good way to keep more money.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.

Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.