Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Digital Wallet Balance
Transcript
- Lucas: If you've got money sitting in Venmo or PayPal right now, it's probably earning zero percent. And with inflation running above 2 percent, that idle cash is quietly losing value. Luna: I know I'm guilty of that. I'll get paid for a freelance gig and just leave the money in my Venmo balance for weeks. How much are we actually losing? Lucas: Let's put numbers on it. The latest CPI reading is 332.6, and the ten-year breakeven inflation rate—basically the market's expectation for average inflation over the next decade—is 2.26 percent. So if you hold a hundred dollars in a digital wallet for a year, you lose about two dollars and twenty-six cents of purchasing power. Luna: That doesn't sound huge, but it adds up. And the Fed funds rate is 3.63 percent right now, so you could be earning almost four percent just by moving that money to a high-yield savings account. Lucas: Exactly. That's a spread of roughly 3.6 percent between what you're earning and what you could earn. For someone who keeps five hundred dollars in Venmo on average, that's about eighteen dollars a year in lost interest—plus the inflation loss on top. Luna: Right, so you're getting hit twice: inflation eats the value, and you miss out on interest you could have earned. Why don't these apps just pay interest on balances? Lucas: A few do offer it now. PayPal has its Savings account that yields around 4.3 percent, and Cash App partners with banks for a similar product. But the default setting for most wallets is a non-interest-bearing account. They make money on transaction fees, not on float. Luna: So the convenience of instant payments comes with a hidden cost if you let money pile up. It's like a lazy tax. Lucas: That's exactly the right framing. And if today's conversation made you think about a decision differently, here's something: the way these episodes stay ad-free is listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the show going and independent. I've done it a few times myself. Anyway, back to those wallets—what can people do? Lucas: First, check your settings. In PayPal, you can enable automatic sweeps to a linked savings account. Venmo doesn't offer that yet, so you have to manually transfer. Cash App lets you deposit directly into a partnered savings account that earns interest. Luna: But won't it slow down the convenience? If I need to send money instantly, having it in a savings account might not work. Lucas: You can keep a small buffer—say fifty dollars—for instant payments, and sweep the rest. Even if you earn interest for only a few days before sending, it's better than nothing. Over a year, that's a free coffee or two. Luna: What about the argument that these balances are often small—like ten or twenty bucks—so it's not worth the effort? Luna: And that's before factoring in inflation. So you're really losing about twelve dollars total per year on two hundred dollars. Not life-changing, but it's a leak you can plug in five minutes. Lucas: Exactly. And there's a bigger picture: the financial system is slowly shifting toward these wallets as primary accounts. Some people, especially younger folks, don't have a traditional bank account at all. For them, the erosion is more significant because all their cash is in these zero-interest apps. Luna: That's a good point. The Fed's recent data shows that about 5 percent of U.S. households are unbanked, but they're heavy users of digital wallets. They're losing purchasing power without even realizing it. Lucas: So the practical takeaway: if you're going to use a digital wallet, treat it like your physical wallet—only keep what you need for immediate spending. Move the rest to something that at least keeps up with inflation, like a high-yield savings account or a money market fund yielding around 4 percent. Luna: And what about the argument that these apps might start paying interest anyway? There's been talk of Venmo adding a savings feature. Lucas: That's been rumored for years, but nothing concrete yet. Even if they do, it's a win-win. But until then, it's on us to move that money. The financial industry isn't designed to protect your purchasing power; you have to do it yourself. Luna: And to be fair, some companies are trying. PayPal has offered a savings account for a while, and Cash App's savings account yields around 4.5 percent. But the default is still zero, and defaults matter. Lucas: They do. So here's a simple rule: every time you get paid into a digital wallet, transfer it out within 24 hours. Set a recurring reminder if you need to. Luna: I'll try that. I already have a reminder to check my Venmo balance each Friday. That could save me maybe ten bucks a year. Lucas: And if you're listening, think about where your digital wallet money is right now. If it's been sitting for more than a week, you're essentially paying for convenience. The amount might be small, but the habit is what matters. Luna: Next time, we'll look at how inflation is quietly eating your unused gift cards—another form of idle cash that's losing value. Lucas: Until then, keep your cash moving. Thanks for listening.