The digital world offers some alternatives to traditional banking, like PayPal. PayPal is popular. It can be a savings account, a bill pay tool, even a primary line of credit.
You can make purchases, track purchases, get paid, and enjoy FDIC insurance. Forbes Advisor (link above) says several financial services offered by PayPal could be enough to meet the banking needs of some people.
I have a personal story to contribute to this discussion. I tried to open a bank account after I moved from Florida. The bank denied me over a bad ChexSystems report. I was an awful money manager, and I had overdrawn my account. So, I applied for a PayPal account to buy some time. Here is what PayPal did and did not do for me.
Opening an Account Was Easy
All I had to do was apply for an account. There was no credit check, and I was quickly approved. PayPal offered me a Mastercard Debit Card linked to my PayPal account. I had it in a few days.
The PayPal Cash Card gave me several benefits.
- I now had an account number and routing number.
- I also had the protection of FDIC insurance. A PayPal account alone does not have FDIC protection. However, when a Mastercard links to the account, any funds go into a pool with FDIC protection by the Bancorp Bank.
My debit card allowed me to make purchases anywhere Mastercard was accepted. For online purchases, my Mastercard worked when PayPal wasn’t an option.
It Provided a Place to Deposit My Cash
I may be a cash person, but enough was enough. I did not want to hide my money in a sock or under the mattress. PayPal allowed me to go to a merchant and, for a small fee, I was able to deposit cash into my account.
I Was Able to Have Direct Deposit of My Paychecks
Paying for cashing paychecks was an annoying expense, but PayPal took that expense away. I enjoyed using the account and routing number for my PayPal Cash Card to have my paychecks directly deposited into my PayPal account for free.
Once I had direct deposit set up, I could withdraw cash at any ATM if I ever ran out of money in my sock.
In addition, if I used a MoneyPass ATM, I avoided a service fee from PayPal for my withdrawal.
I was able to get paid by my employer, and other people could pay me, too. I also could pay them. If I performed some side work, people could send money from their PayPal account straight to mine. PayPal even enabled me to customize and send invoices! Likewise, if I lost a bet or owed cash for another reason, I could pay up with PayPal.
Credit Is Available Through PayPal
Buy now and pay later seems to be the mantra of all but the most enlightened financial gurus. PayPal tries to fit itself to the minor credit needs of most people, assisting and not unconscionably taking advantage of them with exorbitant interest rates.
This is an online service wherever PayPal is accepted. It allows the privilege of making purchases over $99 and paying for them over time, interest-free if paid off in six months or less.
Pay In 4
You can purchase and pay in four equal payments every two weeks without any interest charges with this option. Note that the first payment is due at the time of purchase. Also, your credit score is not going to get better by using this service.
Cash Back and Rewards
Do you want 2% cashback on any purchase? PayPal offers a Cash Back credit card without a fee.
The PayPal Extras Mastercard lets you earn points for spending on certain things. You earn three points for every $1 spent on gas and restaurant purchases; you earn two points for each $1 spent on PayPal and eBay purchases.
Finally, all other purchases make one point per $1. You can use Reward Points to get cash, cover travel expenses, buy gift cards, and even purchase merchandise.
Most people would not think of a PayPal account as a savings account, but it works like one. For average daily balances less than $1,000 on your prepaid Mastercard, PayPal pays interest at an annual percentage yield of 5.0%. The bad news is, when your balance is more than $1,000, the interest rate lowers to 0.5% on the portion greater than $1,000.
It is not a big deal, but PayPal has a website where you can view your balance and track transactions. Plus, you can do it from all of your devices.
PayPal sends a text message each time I receive money. I can set notifications to send me an email anytime there is any purchase activity in my account.
A Few More Extras
I made it to the point where I took care of my overdraft in Florida, and the bank was suddenly more than happy to open a checking account for me. I seriously considered keeping my PayPal account alone, but I am old-school and felt better with a traditional account.
I found that my PayPal account worked great in tandem with my checking. When my PayPal balance was over $1,000, I could quickly transfer money into my checking or savings account. If my PayPal account dropped to $0, it automatically pulled from my checking account to cover any purchases I made.
Okay, What’s the Bad News?
I think there is bad news only for conventional banking when it comes to PayPal. I have no doubt PayPal is capturing a portion of traditional banking’s market.
However, PayPal cannot match the comfort factor provided by conventional banking. I like going to the bank. It’s comfortable.
Do you remember the days of standing in a check-out line, groaning a little when Granny took out a checkbook to write a check for her purchase? PayPal supports those frustrated by waiting in a check-out line. PayPal doesn’t provide paper checks. Die-hard check writers will have to go to the bank for a supply.
Finally, PayPal has not yet found a way to provide the range of services offered by traditional banks. If you need a more significant line of credit, like an auto loan or a home mortgage, PayPal cannot help you. If you need help with wealth management or financial advice, PayPal can’t help you with that, either. You might need more than PayPal to survive.
Image credit: Arthon Meekodong