Is Venmo FDIC Insured?

In recent years Venmo has become one of the most popular apps for sending and receiving money among family members and friends. However, how much do we know about this app’s security, and is Venmo FDIC insured? Take a look at what will happen with your funds on Venmo if something bad happens.

Money on your Venmo balance is not FDIC insured unless you make a direct deposit on your Venmo Balance. Venmo is not a bank but a payment app which means keeping money in a Venmo account is not the same as keeping money in a bank account.

Man paying through Venmo app

Once you deposit money on your Venmo balance, your money will be held at the partner bank that is backed by FDIC. To find out more about Venmo safety, keep reading.

Holding Money at Venmo? Is Venmo FDIC Insured?

All the funds on your Venmo account will be considered unsecured claims unless you have added money to your balance using the direct deposit, cash-a-check feature, or bought cryptocurrency. If you do this, Venmo will place your funds in an account in one or more Program Banks they cooperate with, and your funds will be eligible for FDIC pass-through insurance. However, accounts can be eligible and not for FDIC, and the rules will be different.

Your Account Is Not Eligible for FDIC Pass-Through Insurance

If your account is not eligible for the Federal Deposit Insurance Corporation or FDIC pass-through insurance, your account will be combined with other account holders, and these funds will be invested in liquid investments on your behalf. You will not receive any interest or returns on these investments, nor will you receive any earnings on these investments.

Also, any claims against Venmo will not be possible with these funds, and you will not have ownership of these investments whatsoever. However, Venmo claims that these funds or pools of funds will be separate from their corporate funds, and they guarantee these funds will not be used for operating or corporate expenses.

Your Venmo Money Is Eligible for FDIC Pass-Through Insurance

If your account is eligible for FDIC pass-through insurance, Venmo will hold your funds as custodian, and you will have all the beneficial rights to these funds. The Program Bank and the FDIC are the ones that will decide whether your account is eligible for FDIC or not. If this is the case, your funds will be placed into one or more custodial accounts Venmo has at other banks. These accounts will be eligible for FDIC pass-through insurance up to a certain amount.

This means that if the bank holding your funds fails, you will be eligible to receive the FDIC standard maximum deposit insurance amount, which is currently $250,000. If you have a balance on PayPal and Venmo, you will be qualified to receive money for both accounts. However, if the amount you hold is larger than $250,000, you will not be compensated for the difference.

Another important thing to note is that if Venmo or PayPal fails, FDIC pass-through insurance will not protect you in this case. Also, you may end up paying a fee to Venmo for placing your money in these custodial accounts.

A woman holding a credit card while looking at a laptop

What Are the Pros and Cons of Receiving Money on Venmo?

As you can see, Venmo is not a bank but a payment app, and like with other payment apps, there are some pros and cons to using it. Here are the most important advantages and disadvantages of this payment app:

Send and receive money fastThe money you receive is not FDIC-insured
You can deposit your checks if you don’t have a bank accountYou will pay fees for depositing checks
Early direct deposit to your bankNo interest is earned on the money held in-app
Direct deposits are FDIC-insured

How to Stay Safe While Using Venmo and PayPal?

As you can see, Venmo and PayPal will protect your funds but to certain limits. However, there are some steps you can take to protect your account from any potential hacks and breaches. For starters, you should have a strong password on your app and your Venmo browser account on your computer. Here are other things you should do:

  • Turn off default public settings,
  • Put two-factor authentication,
  • Add pin code to the app,
  • Place a lock screen on your phone,
  • Never link to your bank account,
  • Don’t send money to strangers,
  • Don’t click on suspicious links,
  • Never leave a large balance on your account,
  • Delete Venmo history,
  • Always make sure you are singing out from other devices,
  • Block people you find suspicious,
  • Don’t receive money from strangers.

Is Venmo Safe App to Use?

Even if most funds on your account are not FDIC backed, some are, but this is not the only thing you should consider in terms of safety. When used for its purpose of fast and instant sending and receiving money, Venmo is one of the safest apps you can use. The app uses encryption when sending money to your bank account, so hacker attacks are hard to happen.

However, you should not use any app lightly because your money on it will probably not be FDIC-backed, meaning you can lose it. If you have large amounts of money, always keep it in your bank account and use Venmo only to send and receive smaller amounts of money. In fact, Venmo has a limitation on how much money you can send and receive during the week, which is one of the ways Venmo protects you from losing a lot of money in case of a breach.