Would it be a serious problem if you lost your PayPal balance? What if it lost value as a result of the current financial climate?
(This information applies primarily to U.S. users. If you are outside the U.S., double-check to see if your funds are at risk.)
Since PayPal is not a bank, funds are not directly covered by FDIC (Federal Deposit Insurance Corporation). They are covered by what's called FDIC Pass-Through Insurance. But pay attention, if your funds are in PayPal's money market fund, they are not covered at all by FDIC and may lose value.
First, here's what's covered by FDIC Pass-Through Insurance, from the PayPal site:
You do not need to keep funds with PayPal in order to use our service. If you do hold a balance, you can do so in two ways: (1) PayPal, as your agent, will place your funds in a pooled account at an unaffiliated FDIC-insured bank or savings institution, which is eligible for pass-through FDIC insurance coverage; or (2) you can elect to earn a return on your funds by enrolling to invest all funds that you receive into the PayPal Money Market Fund. The PayPal Money Market Fund is not FDIC insured, not guaranteed by any bank and may lose value. PayPal keeps a record of the amount of your balances, which you can check by logging in to your account through the PayPal Web site at any time.
So the money market funds can lose value. If your funds are not in the money market, PayPal keeps your money in one of three banks. (Wells Fargo, Bank of America, or Comerica - California, U.S.A.). If one of those banks fail,
your balance placed at the bank would be subject to FDIC pass-through deposit insurance coverage, along with any other deposits you hold at that bank, up to a total of $100,000.00 USD. Pass-through deposit coverage is contingent upon PayPal maintaining accurate records and on determinations of the FDIC as receiver at the time of a future receivership of any bank at which we place your funds.
The only way your funds are protected by FDIC is if they are not in the PayPal Money Market Fund. If that makes you nervous, you can close your PayPal Money Market Fund, and have PayPal keep your funds in an FDIC insured bank by-
- logging into your PayPal account
- click "Profile"
- click "Money Market Fund"
- click "Close Money Market Fund"
It will take a little while to get this done, so plan ahead. The bottom line is your funds are covered by FDIC if they're not in the money market fund.
There is one other thing PayPal says:
FDIC pass-through deposit insurance protects you only against the failure of the bank at which PayPal places your funds, and does NOT protect you against PayPal's insolvency. Through the terms of our User Agreement, we believe that your funds will also be protected from any claims of PayPal's creditors and will be returned to you even in the unlikely event of a PayPal insolvency.
It seems like the most reasonable thing to do is scrape your PayPal account regularly, into your bank. At least there is one less layer between you and your money. Keep it simple.
Here is the direct link to the PayPal-FDIC page: http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/travelers-outside
Popularity: 30% [?]
4 comments ↓
Anyone who leaves money in their paypal balance is dumb anyway honestly.
Do a nightly sweep!
Time was I maintained funds in a PayPal MM account, that was when the rates were good. As the rates quietly dropped I removed my funds. If I have to accept PayPal I sweep the same day. This is common sense as BMX said.
WHat about using the funds towards my Paypal credit card? I get a nice rebate when I use my card. I guess it’s a tradeoff…rebate for fear. I usually keep 1-2 grand in the account for Xmas ebay shopping. Works well.
@Muk
I personally don’t think PayPal funds are at risk. But I like to scrape my account into my local bank regularly.
I’ve grown a bit cynical with most things eBay touches, so I like to keep my money away from them when possible.
Leave a Comment