This morning I talked about the relative safety of different online payment methods. As a followup, I wanted to share a tip for protecting yourself from fraud related to online payment services such as PayPal.
On the one hand, online payment services arguably add a layer of protection between your payment information and the vendor on the other end of the transaction. On the other hand, they don’t offer the same sort of fraud protection that is available with credit and debit cards.
Thus, if your account is compromised, someone could drain the linked bank account and you could have a hard time recovering your funds. The simple solution to this problem is to link your PayPal (or whatever) account to an intermediary bank account with no overdraft protection and a minimal balance.
While this might sound like a headache, it’s actually very easy to achieve if you bank with ING Direct. Simply create up a subaccount and link it to your PayPal account. You can move money within the bank instantaneously, so you can fund this account on an as-needed basis.
At the same time, if your PayPal account is compromised, the fraudsters are limited in what they can access.
7 Responses to “Shield Your Bank Account From Fraud With an Intermediary Account for Online Payments”
My payments for Paypal and Google checkout are linked to a credit card, so there should be zero liability if there is a problem.
The Netbank account I originally used to open my Paypal account closed years ago and I simply have not updated the information. Google checkout did not require a link to a checking account and I actually prefer it to Paypal but few vendor accept it.
Interesting post… thanks for the ideas.
I would NEVER link any major financial account with PayPal. Have you read the PayPal user agreement? You essentially give this entity, which is not a bank, not FDIC insured, and not regulated by the SEC, incredible access to your funds.
My recommendation for using PayPal is to open a separate checking just for linking with PayPal and keep your main checking and savings accounts far away.
I would not utilize PayPal as a part of a system for paying your bills and protecting yourself from fraud. For a method, similar to what is described by this post but that has a better system and track record, check out services like MyCheckFree.com
I think Chase has a similar program where you can create a temporary “card”. Its a random number they use to link your account for a period of time.
I don’t know if this is still true, but a couple of years ago, Chase contacted me and asked if I did online shopping and used my account. They were offering a free account to use just for online purchases. I’m guessing it’s much less of a hassle for them to offer free accounts for that than to clean up the messes from hackers.
Correct me if I’m wrong, but that only works if the merchant in question accepts credit cards. Some don’t. And still… If your account somehow gets compromised (maybe someone hacks in), your linked accounts could get cleared out.
paypal has a tool to generate throwaway credit card numbers. some banks like mbna now bofa has shopsafe which provides the same functionality. a lot less complicated than subaccount