Stashing savings in PayPal instead bank

Editor’s note: This article was written by Christopher Smith and originally appeared on Clark.com.

The Fed has raised interest rates at a historic pace since March 2022.

As a result, the best highyield savings accounts now pay more than 4% in annual interest. Meanwhile, some of the biggest banks are paying less than 0.2% APY, counting on inertia to keep customers in place.

Savvy consumers are comparison shopping their savings accounts. But several high-profile banks failed this year, spawning a new round of fear and mistrust among consumers.

A variety of fintech companies, including digital payment companies, investment companies and robo-advisors, are offering their own brand of interest-bearing accounts. Some even offer much higher effective FDIC limits by spreading deposits across multiple banks.

Should I move my savings from my bank to PayPal? That’s what a listener asked on the June 14 podcast episode.

Asked Jeff in Alaska: “Should I transfer money out of my bank account into my PayPal account? PayPal currently offers 4.15% APY [now 4.30%]. Is this too risky? What about FDIC insurance and PayPal?”

Earlier in the podcast, Clark warned that storing large sums of money inside your PayPal account is a bad idea. No one expects PayPal to suddenly go out of business. But there have been plenty of unforeseen “black swan” events with large financial institutions this year. And there are no consumer protections for your regular PayPal balance.

However, if you’re in the official PayPal savings equivalent, your money is protected.

“So long as it’s in the PayPal account that has access to FDIC insurance, you’re fine. And you’ve got the 4.30% interest rate,” Clark said.