Are You Making These 3 Costly Venmo Mistakes?

Venmo has become a favorite app for many people in India when it comes to sending and receiving money quickly. Whether you’re splitting the bill with friends, paying your share of the rent, or simply sending money to family, it’s a convenient option. However, many users are unaware of some costly mistakes they might be making while using Venmo. Let’s discuss the top three errors to avoid, so you can keep your finances in check.

1. Keeping a Large Balance in Your Venmo Account

First things first, it’s tempting to keep a lot of money in your Venmo wallet, thinking it’s safe and easily accessible. But that’s a mistake! Unlike a traditional bank account, Venmo balances aren’t FDIC insured by default. What does that mean? If something goes wrong, like a data breach or a scam, the money in your Venmo account might not be protected.

Why This is Risky:
When you deposit your money in banks or credit unions, up to ₹2 crore (around $250,000) is insured by the government. So, if a bank were to fail, your money is still safe. But Venmo is not a bank. It works differently. Your funds might be held in an insured bank, but your Venmo balance itself does not automatically offer you that protection unless you’ve taken specific actions like setting up direct deposit or using a Venmo debit card.

What to Do Instead:
Consider moving any money you don’t need urgently to a high-yield savings account. These accounts can earn you interest—sometimes between 4% to 5% per annum! For example, if you have ₹4,00,000 (around $5,000) in a savings account at a rate of 4%, you could earn more than ₹8,000 (around $100) in just six months, just by letting your money work for you.

2. Using a Credit Card for Venmo Payments

Many users opt to pay their friends or family using a credit card linked to their Venmo account. While this may seem convenient, it can also cost you—literally. Venmo charges a 3% fee when you send money using a credit card.

Why You Should Avoid It:
At first glance, a 3% fee might not seem like much. But if you send a few payments throughout the month, it can quickly add up. For example, if you send ₹10,000 (about $120) every month, that’s ₹300 (about $4) down the drain each time. In addition, many credit card companies treat Venmo transactions as cash advances, meaning you won’t earn any reward points or cash back.

Better Alternatives:
Instead of using a credit card, link Venmo to your bank account or debit card. This way, transferring money will be free, and you can avoid those pesky fees.

3. Choosing Instant Transfers Over Standard Transfers

Venmo is popular for its quick transfers, especially when you need to send or receive money urgently. However, opting for instant transfers can come with hidden costs. Venmo charges a fee of 1.75% for instant transfers, with a minimum fee of ₹20 (about $0.25) and a maximum cap of ₹2,000 (about $25).

Why This Matters:
If you’re sending a smaller amount, the fee isn’t a big deal. But if you’re transferring larger sums, the cost can be significant. For instance, sending ₹10,000 in an instant transfer would incur a fee of ₹175, while waiting for a standard transfer is completely free.

Suggested Strategy:
If you don’t need the money to be transferred immediately, opt for the standard transfer option. Although it might take a day or two, you won’t have to pay any fees, helping you keep more money in your pocket.

Conclusion

Venmo is an amazing tool for managing your finances with ease, but it’s crucial to avoid these common mistakes. Keeping a low balance in your Venmo account, steering clear of credit card payments, and opting for standard transfers can save you money and keep your funds secure.

With a little mindfulness about how you use Venmo, you can make the most out of this popular payment app without the financial pitfalls. Keep these tips in mind to enjoy a smooth experience!

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Original Text – https://www.investopedia.com/are-you-making-these-3-costly-venmo-mistakes-11806282