Should you link Paypal to your main checking account?

I appreciate the convenience offered by Paypal, making or receiving payments became as easy as sending an email. But what is Paypal? Is it a bank or a credit card provider? Neither. It isn’t regulated like a bank or like a credit card provider. Their rules are draconian – if Paypal freezes your account, they can hold the freeze for 180 days. That is 6 months of lost interest! Even if you were in the right, you don’t get back the lost interest. Most merchants refuse to refund your purchase if funded via Paypal but will refund if it is done via a credit card. Can’t blame the merchants; Paypal doesn’t make the process easy.

Paypal isn’t exactly known for good customer service either. I’m not against Paypal. I’ve been with them for a very long time and so far haven’t had any problems. And I’m not advocating anything against Paypal. But their rules are different compared to Visa or Mastercard or a bank. So as a consumer, you should treat Paypal differently than a bank or a credit card. It is your money after all.

So what can you do minimize the damage caused if Paypal decides to put a freeze?

• Never link your payroll checking account to Paypal
• In fact, don’t even use the same bank. Sign up with a bank like IngDirect; they make the sign up process real easy
• Don’t leave any balance in Paypal. When you get paid, move it out of Paypal and eventually out of the linked bank account
• If you are making a purchase and if the merchant gives your a choice between credit card and Paypal, pick credit card
• If the merchant only provides payment via Paypal, don’t sign in to your Paypal account to make the payment. PayPal offers payment via credit cards. Use that.

PayPal certainly has made online shopping a breeze. But use it with care. Protect your money first and foremost.

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