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More than 300 million people and businesses worldwide use PayPal to send money, receive money and shop online. Along with digital payments, PayPal offers other financial services like debit cards, prepaid cards, credit cards and lines of credit. If you don’t already have a checking or savings account, you may be considering using PayPal as your everyday banking solution. After all, PayPal offers convenience and a digital-first experience.
However, while PayPal offers some bank-like features, PayPal is not a bank and it doesn’t provide the same range of financial services. Depending on what you need from your banking relationship, PayPal may or may not cover all of the bases.
Here’s a closer look at PayPal—and the financial products and services it offers—to help you decide whether it’s the right fit for your goals.
What Is PayPal and How Does It Work?
What Is PayPal?
PayPal is a digital payments company available in more than 200 countries. It offers the ability to make transactions in 25 currencies. And it was one of the first companies to make it possible for people to easily and securely shop online and send money to people electronically. Although PayPal is not a bank, it partners with banks—like The Bancorp Bank and Synchrony Bank—to offer various products like debit cards, prepaid cards, credit cards and lines of credit.
How Does It Work?
PayPal allows you to connect an external bank account, credit card and debit card and use the service to shop online securely. It acts as an intermediary between your payment method and merchants, keeping your payment information safer.
You can also use PayPal to make online payments or to send and receive money between friends, family and business partners.
Do You Need a Bank Account for PayPal?
No, you don’t need a bank account to sign up for PayPal or to receive payments. You can, however, connect your PayPal account to a bank account, a debit card or a credit card account for sending and receiving payments and transferring funds.
You will need to link a bank account if you ever want to take cash from your PayPal balance; you must have a place to transfer the money to. But a connected account isn’t necessary if you only plan to use PayPal funds to shop online or send money to family and friends.
PayPal Products and Services
PayPal offers several banking products and financing options:
- PayPal Cash and Cash Plus Accounts. If you want to keep money in PayPal, you’ll need either a PayPal Cash or PayPal Cash Plus account linked to your personal account. These two cash balance accounts let you send money from your PayPal balance, hold money in PayPal and shop in-store with your balance with Google Pay or Samsung Pay (where accepted). PayPal Cash Plus is a more advanced account that you get when you apply for a PayPal Cash Mastercard or enroll in direct deposit to add your paychecks to your PayPal balance automatically.
- PayPal Cash Mastercard. This debit card lets you use your PayPal balance to spend money online or in stores, wherever Mastercard is accepted, just like a bank account with a debit card. You can also use this card to withdraw cash, fee-free, at more than 33,000 MoneyPass ATMs worldwide. There’s no monthly fee, no minimum balance and no credit check to get this card. Receiving this card also makes your PayPal Cash Plus account balance eligible for pass-through FDIC insurance, through one or more partner banks. (More on FDIC insurance below.)
- PayPal Prepaid Mastercard. This prepaid card gives you a convenient way to manage your spending, while also giving you the option of setting up a tiered-rate savings account that offers 5.00% APY on an average daily balance of $1,000 or less. Any portion of the balance above $1,000 earns 0.50% APY. This account is FDIC insured through The Bancorp Bank.
- PayPal Cashback Mastercard®* issued by Synchrony Bank pursuant to a license by Mastercard International Incorporated. This credit card pays 3% cash back when checking out with Paypal and 2% on all other purchases where Mastercard is accepted, with no annual fee* and no category restrictions.
- PayPal Extras Mastercard®*. This credit card offers reward points for spending in specific categories. Cardholders earn 3 points per dollar spent on gas and restaurant purchases, 2 points per dollar spent on PayPal and eBay purchases, and 1 point per dollar spent on all other Mastercard purchases. You can redeem rewards for cash back, travel vouchers, gift cards or merchandise.
- PayPal Credit. This is a digital, reusable credit line that allows you to pay over time for purchases of $99 or more. If you pay off your purchase within six months, you won’t owe interest. There’s no annual fee, and you can use PayPal Credit wherever PayPal is accepted.
- Pay in 4. This is a buy now, pay later option that lets you use PayPal to pay for a purchase in four installments, with one payment every two weeks. These installment payments are interest-free and using this option does not affect your credit score.
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Can PayPal Serve as Your Bank Account?
PayPal offers several financial services and products that may serve the banking needs of some people. You can use PayPal to pay your bills, online or from the PayPal app. If you’re looking for a convenient way to get more benefits from your PayPal account, some of the PayPal credit cards, debit cards or financing options could be helpful.
Especially if you can’t qualify to open a traditional bank account because of a bad ChexSystems score, PayPal may offer an effective way to manage your money.
PayPal itself is not a bank, so, if you are leaving money in your PayPal account, that money is not FDIC insured in the same way it would be in a bank account. If you want FDIC insurance for your PayPal balance, your best option is to request (and receive) a PayPal Cash Card.
Once you have a PayPal Cash Card, PayPal will begin to deposit your funds into a pooled account held by PayPal at an FDIC-insured bank. PayPal’s intent is to provide these funds with the benefit of pass-through FDIC insurance up to the applicable limits. With that being said, if you are keeping a significant amount of funds in your account, we’d recommend using an account that offers direct FDIC insurance.
PayPal also doesn’t offer the same range of financial products and experiences as a full-service bank. One small example: PayPal doesn’t provide paper checks, often a standard feature offered with checking accounts found at banks. And, if you want the in-person experience of a brick-and-mortar bank, PayPal isn’t the service for you. PayPal also doesn’t provide other products and services that you may find at a full-service bank, such as auto loans, home mortgages, home equity lines of credit or wealth management.
Alternatives to PayPal
PayPal might not be able to serve as a bank replacement. If you want the protection and convenience of a bank checking account or credit union share draft account, PayPal may not be the best choice. Although PayPal can provide some helpful financial products and tools for online payments, you may want to look elsewhere for the relationship that will serve as your financial home base.
Here are a few alternatives to using PayPal as your bank account:
- Consider a credit union. If you haven’t had a good experience as a bank customer, or if you want an alternative to keeping your money with banks, you may want to try becoming a member of a credit union. Credit unions are community-based and member-owned nonprofit organizations. As such, they tend to charge lower rates and provide better deals to their members.
- Try mobile banking features. If you like the digital-first experience of using PayPal, consider checking out the latest mobile banking app features being offered by banks and credit unions. Many banks have improved their digital experiences, providing better tools and features for customers, like advanced account insights and automated savings.
- Get a second chance bank account. If you have a track record of having your bank account closed or other bad marks on your banking history, you may want to apply for a second chance banking account. These accounts, offered by some banks and fintechs, help people get a fresh start in banking.
Bottom Line
PayPal offers compelling options and value-added services for people who may want a debit card, prepaid card, cash back credit card, access to small lines of credit and convenient online payments. But if you want a full-service banking experience, using PayPal as your bank account may not provide the range of services and tools you need.
You may find that you get the best experience from your PayPal account while relying on a bank or credit union as the steady home base for your money. Using PayPal in addition to a bank account, not PayPal as a sole bank account, may provide the best functionality. That said, whether you use PayPal as your primary financial account is ultimately up to you and your needs as a consumer.
