Can You Use PayPal Like a Bank?

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PayPal is used for online payments by more than 300 million people and businesses around the world. PayPal is a digital payment service that also provides access to debit, prepaid, credit, and line of credit card options. If you don't have a checking or savings account, PayPal could be a convenient alternative. After all, PayPal is a digital payment platform that prioritizes ease and speed.

While PayPal does have some banking-like features, it is not a bank and does not offer the full gamut of banking services. PayPal may or may not have everything you need in a banking relationship, depending on what those things are.

To help you determine if PayPal is the right fit for your financial needs, let's take a closer look at the products and services it offers.

PayPal is a payment service that accepts electronic transfers from customers in over 200 countries. It supports dealing with 25 different currencies. In addition, it was an early pioneer in the field of online financial transactions and e-commerce security. PayPal is not a bank itself, but it does partner with banks like The Bancorp Bank and Synchrony Bank to provide banking services, including debit cards, prepaid cards, credit cards, and lines of credit.

Why Doesn't It Work

You can use PayPal to safely make online purchases after linking your bank account, credit card, or debit card to the service. It's a third party that stands between your chosen method of payment and the stores you shop at, protecting your financial data.

You can use PayPal to send and receive money with your friends, family, and business associates, as well as to make purchases online.

Is a Bank Account Necessary for PayPal?

To sign up for PayPal or to be paid using it, a bank account is not required. However, you can link your PayPal account to your bank account, debit card, or credit card to make financial transactions easier.

If you ever want to withdraw money from your PayPal balance, you'll need to connect a bank account so that the funds can be transferred there. However, if you just want to use PayPal to send money to loved ones or make online purchases, you don't need a linked account.

Offerings from PayPal

There are a number of banking and financing options available through PayPal.

  • Accounts for PayPal Cash and Cash Plus You can keep money in PayPal by linking your personal bank account to a PayPal Cash or PayPal Cash Plus account. You can use either of these accounts to send money to other people, save money, or buy things in stores that accept Google Pay or Samsung Pay. When you sign up for a PayPal Cash Mastercard or have your paychecks deposited directly into your PayPal account through direct deposit, you'll be upgraded to a more robust PayPal Cash Plus account.
  • Cash Mastercard from PayPal Like a debit card from a traditional bank, this card lets you use your PayPal balance to make purchases wherever Mastercard is accepted. More than 33,000 MoneyPass ATMs around the world accept this card, allowing you to make cash withdrawals at no cost. This card requires neither a minimum balance nor good credit to obtain, nor does it charge a monthly fee. Your PayPal Cash Plus account balance will be pass-through FDIC insured through one or more participating banks once you receive this card. (See below for more on FDIC insurance.) )
  • Credit Card Prepaid by PayPal This prepaid card provides a hassle-free method of keeping track of your spending, and it also allows you to open a tiered savings account with a competitive interest rate of 5%. Annual Percentage Yield of 0% Minimum Daily Balance of $1,000 Over $1,000, no interest is earned. 50% APY The Bancorp Bank, the custodian of this account, is an FDIC-insured institution.
  • Mastercard┬« with PayPal Cash Back * There is no annual fee or restrictions on what you can use your cash back for, and you'll earn 3% on PayPal purchases and 2% everywhere else Mastercard is accepted.
  • The Mastercard┬« PayPal Add-On * You can earn bonus points with this credit card by making purchases in certain categories. For every dollar spent on gas and dining, cardholders earn three points; for every dollar spent on PayPal and eBay, cardholders earn two points; and for every dollar spent anywhere else, cardholders earn one point. Rewards can be redeemed for anything from cash to gift cards to merchandise.
  • Credit Purchases with PayPal To make purchases of or more over time, you can use this revolving digital credit line. No interest is charged if the purchase is paid in full within six months. You can use PayPal Credit anywhere PayPal is accepted, and there is no annual fee.
  • Pay in 4 Here, you can make four equal payments over the course of two weeks using PayPal's buy now, pay later program. The use of these installment payments will not have any negative effects on your credit rating.

Can You Use PayPal Instead of a Bank?

Some people's banking needs may be met by PayPal's suite of financial services and products. PayPal allows you to pay your bills online or with their mobile app. Some of the PayPal credit cards, debit cards, or financing options may be useful if you're looking for a simple way to maximize your PayPal account's potential.

PayPal could be a useful alternative to traditional banking for people with low or nonexistent ChexSystems scores.

Since PayPal is not a bank, your funds in your PayPal account are not protected by the Federal Deposit Insurance Corporation (FDIC). The best way to get your PayPal balance protected by the FDIC is to apply for and receive a PayPal Cash Card.

Once you receive your PayPal Cash Card, your money will be deposited into a PayPal-managed pooled account at an FDIC-insured bank. PayPal intends for these funds to be covered by pass-through FDIC insurance to the extent allowed by law. Therefore, if you plan on depositing a sizable sum of money into your account, you should look for a financial institution that provides direct FDIC insurance.

Similarly to a traditional bank, PayPal does not provide a comprehensive suite of banking services. One minor difference between PayPal and a traditional bank checking account is that the former doesn't issue paper checks. Also, PayPal is not the service for you if you prefer the traditional banking system. In addition, PayPal does not offer the same range of services as a traditional bank. This includes things like auto loans, mortgages, home equity lines of credit, and wealth management.

Options besides PayPal

PayPal could never replace banks, unfortunately. PayPal might not be the best option if you prefer the security and ease of a traditional bank checking account or credit union share draft account. PayPal is a useful service for making online payments, but if you're looking for a long-term financial partnership, you might want to keep looking.

Some alternatives to using PayPal as your primary financial institution are as follows:

  • Try a cooperative bank instead. You can become a member of a credit union if you've ever had a bad experience with a bank or if you simply prefer not to keep your money in a bank. To put it simply, credit unions are cooperative financial institutions that are owned by their members and serve the local community. Because of this, they can offer their members better deals and lower prices.
  • Make use of your mobile banking app. Check out the newest features of your favorite bank or credit union's mobile banking app if you enjoy PayPal's digital-first experience. Numerous financial institutions have upgraded their online services by introducing new features and functions, such as in-depth account analytics and automatic savings plans.
  • Start a new financial chapter. Applying for a "second chance" bank account can be a good idea if you have a history of bank account closures or other negative marks on your credit or banking report. Some financial institutions and fintechs provide services like these to help customers get their financial lives organized.

In conclusion

In addition to convenient online payments, PayPal also provides debit cards, prepaid cards, cash-back credit cards, access to small lines of credit, and more. However, if you're looking for a wide variety of banking options, you may find that PayPal falls short as a replacement for a traditional bank account.

While a bank or credit union can serve as a safe haven for your funds, you may find that using PayPal gives you the best overall service. You may get the most out of your PayPal account by linking it to another bank account rather than using it exclusively. Still, it's up to the individual's preferences and financial needs to decide whether or not to use PayPal as the primary financial account.

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