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Should I use my personal PayPal account as a bank account?

Updated: Jun 1, 2021

"PayPal is a great service that allows you to send and receive money securely, purchase items online, and pay bills but it's not a bank. You are better off having your money in a bank account instead of a Paypal personal account."

By Allan R. Kirby

Should I use my personal PayPal account as a bank account?  Paypal provides a great service but shoud you use it like a bank account.

About Paypal

Paypal is a popular US-based public company (PYPL) that operates an online payments platform as well as money transfer services in major countries around the world. It's a great alternative to money orders or sending checks.

Specifically using Paypal allows you to:

  • Send and receive money securely and electronically.

  • Buy goods and services online, on mobile devices, or even in stores.

  • Personal account users can make payments using Credit cards, debit cards, through bank accounts as well as using your Paypal money balances.

  • As a business owner, you can accept debit cards, bank accounts, PayPal balance,s or other payment methods from others.

PayPal Personal Accounts

Paypal allows you to set up a personal account for free. This account allows you to make purchases and send money to family and friends. You can also use a personal account to receive money for the sale of goods and services, but it's suggested that if you plan to use your PayPal account primarily to sell things, you should consider a business account.

"You can convert your PayPal account from a personal account to a business account should circumstances change."

Benefits of a PayPal Personal Account

Paypal does have a few advantages such as:

  1. It's free to use, easy to set up.

  2. Provides a way to send and receive money quickly and securely.

  3. PayPal's personal account balances can be held in any currency supported by PayPal.

  4. You can hold a balance in more than one currency at the same time.

  5. Even with a personal account, you can easily get paid from customers selling on a marketplace, offering a service online, or setting up a store with the services.

  6. With the PayPal wallet, you can securely store various credit cards, debit cards, and bank account info in one place, so you can have many options for payments at checkout.

  7. PayPal has a Purchase Protection plan that allows you to be protected in the case of fraud when making purchases through Paypal.

  8. You can make recurring payments to all your monthly bills and subscriptions.

PayPal is not a bank and does not itself take deposits. You will not receive any interest on the funds held with PayPal.

With so many benefits why not use Paypal as a bank account?

There is no question PayPal is useful and can be a great service for doing payments, transfers, and payments however there are underlining issues with Paypal that customers need to be aware of when deciding to use Paypal as a bank account:

  1. Paypal is not a bank nor is it insured, meaning if something happens to Paypal you can lose all of your money. Banks operating in most countries such as the United States and Canada require insurance to protect consumer's money in case of failure, for example, Federal Deposit Insurance Corporation which insures your deposits up to $250,000 per depositor. So your money is protected at a bank while it's not with Paypal and it's even stated in their terms of service "Any PayPal balance you hold represents an unsecured claim against PayPal and is not insured."

  2. You forgo interest: such as High-Interest Savings accounts: Even if it's a small amount of money, you can earn much more money using high-interest savings account over PayPal. Paypal reserves the right to keep any interest earned that is sitting in your account balances. As Paypal explains "PayPal combines your balance with the balances of other users and invests those funds in liquid investments. PayPal owns the interest or other earnings on these investments. "

  3. Paypal is not a totally free service there are fees, for example, If your purchase involves currency conversion, a fee will apply.

Final Thoughts

It's a common question that is raised with many people, "should I use Paypal as a bank account." Paypal is a great service and but you should be careful not to put too much money into PayPal. Your money is not insured and you are forgoing interest on your deposits. Many online-only banks provide high interest on deposits and you can also get a relatively good interest on certificates of deposits as well. Additionally, by holding money in Paypal, you lose other opportunities such as investing and building wealth, all of which are keys to long-term success with your finances. Yes, there is no question Paypal is a great service and it never hurts to have a little money in the account, but you are forgoing building wealth and insurance protection. Ultimately it's up to you but I certainly sleep better by having my money in a bank.


This is a blog written by Allan R. Kirby, who writes and produces Personal Finance articles and videos.


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