What Is Cash App And How Does It Work

A photo to accompany a guide to Cash App

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Cash App is a peer-to-peer payment service that's catching on fast. Cash App grossed $385 million in 2020, representing a 212 percent increase in profits from the year before.

"Cash App is a relatively strong option for sharing cash and its other functionality. It's not too different from Zelle, Paypal or Venmo," says Ray Kimble, Founder and CEO of security firm Kuma LLC.

More and more Americans are using computers and smartphones for our banking needs. About 65 percent of Americans are expected to bank online by 2022. If you're looking for a new payment app, Cash App might do the trick, but there are some drawbacks. Here's what to know about Cash App before signing up.

What Is Cash App?

Cash App is a mobile app-focused money transfer service. You can send and receive funds directly and quickly, like you could with PayPal or Venmo. But Cash App features a few other functions as well.

Aside from transferring money, Cash App will provide you with a bank account and a debit card, which you can use at any ATM. You can even invest in stocks and Bitcoin through the app. Some of these services are free, while others require a fee. There's a major downside here though: your Cash App balance is not FDIC-insured. That's protection for your money, so there's no guarantee that you'll get your money back if something goes wrong.

Cash App has been around since 2013. It was originally called Square Cash, in reference to Square Inc., Cash App's parent company. Square Inc. was co-founded by Jack Dorsey of Twitter.

How to Sign Up for Cash App

You can sign up for a Cash App account quickly.

All you need for an account is your name, ZIP code, and either an email or phone number. You don't need to link your bank account to open a Cash App account, but will need to do it eventually to use most of the app's features.

Pro Tip

You can increase your monthly sending and receiving limits by fully verifying your Cash App account.

Once you've opened your account, you'll create your "cashtag" ($Cashtag), which is your unique username. Your $Cashtag is how people find your account in the app. With your username, you'll be able to send and receive payments. You also have the option to get a free Cash App debit card, which the company will send you in the mail.

The Cash App debit card is connected to your balance, and the card can be used anywhere that accepts Visa. If you use your debit card at an ATM, Cash App charges a $2 fee. However, Cash App also facilitates direct deposits. If you have a paycheck direct deposit of at least $300 per month, then Cash App reimburses the $2 ATM fee. Remember though that your money is not FDIC insured, so if something goes wrong, you'll be out of luck.

How To Send and Receive Money

Cash App's user interface is incredibly simple, which makes sending and receiving money easy. To send money, you'll find the receiving person via their name, phone number, or $Cashtag in the app.

You send the cash, then the person you're sending to will receive an email or text alert. The recipient chooses how fast the transfer goes through.

To receive money, you can send a request for payment. The request can be sent via the person's name, $Cashtag, email, or phone number. The app will notify you once payment has been made, and then you choose how fast you get the money.

Cash App gives you the option to deposit money you receive in your bank account or your linked debit card. The cash deposits into your debit card instantly, but it can take up to 3 days for a deposit to hit your account. However, both of these deposits are free.

If you would like an instant deposit to your account, the deposit is subject to a 1.5 percent fee of the total amount, with a $0.25 minimum fee.

Cash Limits

You can send up to $250 within a 7-day period, and receive up to $1,000 within a 30-day period. If you want to increase your sending and receiving limits, you'll have to further verify your identity on the service.

To fully verify your identity, Cash App asks for your full name, birthday, and the last 4 digits of your Social Security number.

You can open an account with no minimum balance, and Cash App doesn't advertise the maximum balance your account can have. The minimum amount you can send and receive is $1. There is no service charge or monthly fee for having a Cash App balance.

How Secure Is Cash App?

"Cash App uses PCI-DSS, the same protocol used by major credit card companies. Payments are encrypted on both ends. It is no less secure than using a credit card," says Farah Sattar, computer engineer and founder of DCRYPTD.

Despite the solid security, remember your Cash App balance is not FDIC-insured. This is definitely a strike against the service and something to keep in mind when you open an account.

Cash App also allows you to invest in stocks and Bitcoin. If you use Cash App for investing purposes, this might amplify your concerns. Cash App is a registered broker-dealer, member FINRA and SIPC.

"Cash App might make sense for a new investor seeking to get started," says Ryan Shuchman, investment advisor and partner at Cornerstone Financial Services.

However, Shuchman notes that Cash App also comes with drawbacks for investors.

"The platform doesn't offer mutual funds. You also can't trade options or some other advanced investment products. Cash App has very limited analytics and research features. It is probably not an appropriate platform for larger and more sophisticated investors," says Shuchman.

Should You Buy Bitcoin on Cash App?

Apps like Cash App, Venmo, and Robinhood make it easier than ever for people to buy Bitcoin and other cryptocurrencies, but there are good reasons to proceed with caution before you do.

For starters, cryptocurrency is a relatively young asset class compared to conventional stocks, which contributes to its highly volatile value and big price swings by the day and even by the hour. Experts say it's smart to keep crypto investments to less than 5% of your portfolio, and to make sure it doesn't get in the way of saving for emergencies and paying down high-interest debt.

And while apps like Cash App tend to be easier to use, mainstream cryptocurrency exchanges come with more features and industry-leading security measures that protect investors' crypto.

Fraud Protection

Cash App payments are encrypted, most payments are made instantly, and usually the payments cannot be cancelled once the money is sent. This definitely leaves room for fraud and other crimes of social engineering.

"Third party apps like this, although they may be PCI-DSS compliant and encrypt all of their data, still put the responsibility on the user to make sure they use strong security and privacy practices for protecting their account," says Kimble.

Sattar also notes that Cash App users can be susceptible to some forms of cybercrime, due to the digital nature of the payment service:

"As with any internet-based technology, Cash App is susceptible to sniffing attacks. For example, if someone claiming to help you asked you to share your screen, do not do it. Anyone qualified to help will walk you through the steps without ever asking for a screen share or login credentials," says Sattar.

Bottom Line

Cash App is a handy service for sending and receiving money. Transfers are fast and easy, and the added bonus of being able to invest and use a debit card with the service makes it a great tool in the digital age.

However, your balance on Cash App is not FDIC-insured, which means there's no guarantee you'll get your money back if the company gets hacked and things go south. Cash App probably isn't a good idea as a bank replacement. But it's helpful for transferring small sums instantly and securely.