New warning: How scammers are robbing people through the Zelle app

Zelle, the popular payment app backed by the big banks, has become such a security risk that only people with money to lose should use it.

That’s the advice from money expert Clark Howard, who is on record as warning consumers to stay away from Zelle due to previous infractions.

A good reason not to use Zelle: Banks offer no consumer protection

Hackers have figured out that Zelle and similar apps are low-hanging fruit when it comes to stealing people’s hard-earned money, Clark says.

Here’s their latest strategy: You think you’re buying something online on a marketplace site like Facebook or Craigslist and the seller tells you to pay using Zelle.

Once you do that, the seller (scammer) simply takes your money, shuts down their bank account and never sends the product, according to TechCrunch.

The kicker in all this is that Zelle users have virtually zero recourse for getting their money back.

The banks behind Zelle — JP Morgan Chase, Bank of America, Wells Fargo and more — have been largely silent on problems with Zelle fraud protection.

Clark says the fact that Zelle being fully integrated into the banking system is what makes it different from the other payment apps from a security perspective, as well as fraud protection.

Many banks have built Zelle into their apps. Here’s the Wells Fargo app. You can see there’s a “Send Money with Zelle” button dead-center:

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Because real bank accounts are involved — and you figure that the big banks are backing and securing the transaction  — many people feel a false sense of security when using Zelle.

The banks’ position has been that if you agree to send money to someone, there’s no turning back. Here’s what it says in Zelle’s fine print:

So, unlike with a credit card, there’s no mechanism for reversing or disputing a payment once you’ve made one using Zelle.

Final thought

If you take nothing else away from this, let be that Clark absolutely doesn’t want you to set up Zelle if your bank offers it.

However, other payment apps can be useful when it comes to transferring money to family, friends and trusted merchants. Here is the #1 thing you need to do if you use payment apps.

Here are more Clark.com articles you might enjoy

Best online banks: Free checking and high-interest savings accounts

Several online banks including Ally Bank, CIT Bank and Marcus by Goldman Sachs have recently lowered the yield on their high-interest savings accounts. 

CIT Bank’s Savings Builder account dropped to 2.30% APY in late June 2019. Despite the change, its rate and other online-only banks pay more interest compared to traditional banks. 

The average rate on savings accounts nationwide is only 0.10%, according to the FDIC.

Some Clark.com readers tell us they’ve moved their savings to Wealthfront’s FDIC-insured cash account, which offered 2.57% APY as of July 2019. Wealthfront is a robo-advisor investment service.

If you want to earn more interest and grow your savings, now is a great time to switch from a traditional bank to an online bank.

Many online-only banks are growing in popularity because they have lower fees and higher interest rates compared to the big banks — and they’re still a safe place to keep your money.

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Depositing a check is easy with your bank’s mobile app, but there’s no way to deposit cash with most online banks.

Best online banks: Team Clark’s picks 

If you’re someone who never needs to walk into a bank or credit union, you may be able to bank 100% online like Clark.com senior writer Michael Timmermann who has accounts with Discover Bank and CIT Bank.

Discover’s cash back checking account has 1% debit card rewards, while CIT Bank’s savings interest rate is now well above 2%.

Best online banks: Table of contents 

Not ready to leave your bank or credit union completely? You can keep your checking with them and open just an online savings account. After all, that’s where you’ll be earning the most interest anyway.

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Look at it this way: Some online banks pay a full 2% APY (annual percentage yield) more than big banks.

Here’s the difference over five years if you open up a savings account at a traditional bank and deposit $5,000, then fund an online savings account with $5,000:

Savings rates comparison

Traditional bank: 0.01% APY

Online bank: 2.05% APY

Year Total Year Total 1 $5,000.50 1 $5,102.50 2 $5,001.00 2 $5,207.10 3 $5,001.50 3 $5,313.85 4 $5,002.00 4 $5,422.78 5 $5,002.50 5 $5,533.95

Team Clark has identified some of the best online banks. All of them are FDIC-insured, which means that your deposits (like checking and savings) are protected up to the FDIC insurance limit.

Each depositor is insured to at least $250,000 per insured bank. Read more at FDIC.gov.

The banks on our list don’t nickel and dime their customers. They offer free checking with perks, top rates for online savings accounts, mobile banking tools and great customer service.

Read on for Team Clark’s picks and let us know about your favorite online bank in the comments below…

Best online banks: Team Clark’s picks 

Ally Bank 

Ally Bank offers 2.10% APY on savings for all balance tiers, interest checking with no monthly fees and 24/7 customer service. 

Checking

• 0.60% APY on balances $15,000 and more, 0.10% below that
• No monthly maintenance fees
• Use Allpoint ATMs for free, plus $10 reimbursement per statement cycle for other ATM fees
• Free standard checks

Savings

• Online Savings Account: 2.10% APY on all savings tiers
• High Yield Certificate of Deposit (CD): 2.55% APY for 12 months, no minimum balance

Discover Bank 

You probably associate Discover with cash back credit cards, but it also has a checking account with cash back rewards for debit card purchases. 

Checking

• Earn 1% cash back on up to $3,000 in debit card purchases each month
• No monthly fees or monthly balance requirements
• Access more than 60,000 surcharge-free ATMs (Allpoint or MoneyPass networks)
• No fees for insufficient funds, excessive withdrawals, falling below minimum balances and stop-payment requests
• Free checks upon request

Savings 

• Online Savings Account: 2.05% APY, no minimum deposit or monthly fees
• 12-month CD: 2.40% APY, $2,500 minimum initial deposit

Capital One 

Online banking customers can deposit cash at select Capital One-branded ATMs and Capital One Cafes. 

Checking 

• Earn 0.20% APY on 360 Checking account balances under $50,000
• $0 minimum deposit and no monthly fees
• Access to 39,000 fee-free Capital One and Allpoint ATMs

Savings 

• 360 Money Market: 2.00% APY for balances of $10,000 or more, 0.85% APY for balances below $10,000
• 360 Savings: 1.00% APY for any savings balance

Simple 

Simple is fee-free banking! There are no minimum balance requirements, and no maintenance, overdraft or monthly fees.

Checking 

• Built-in budgeting tool with the Simple app
• Fee-free online checking account, including no overdraft fees
• Free access to Allpoint ATMs
• Protected Goal Accounts with a $2,000+ balance earn interest

CIT Bank 

CIT Bank offers some of the nation’s highest interest rates on its savings accounts, but you must keep a $25,000 balance or deposit $100 a month to earn the best rate. 

Savings

• Savings Builder: 2.30% APY if you maintain a $25,000 balance or deposit $100 per month
• Money Market: 1.85% APY, $100 minimum opening deposit
• No-Penalty, 11-Month CD: 2.05% APY, $1,000 minimum opening deposit

Marcus by Goldman Sachs 

Marcus by Goldman Sachs has a competitive rate on its savings account and no monthly maintenance fees. 

Savings 

• Online Savings Account: 2.15% APY, $1 minimum deposit to earn interest
• No-Penalty, 13-Month CD: 2.35% APY, 

  $

  500 minimum deposit 

Charles Schwab Bank 

Schwab Bank checking and savings customers get unlimited fee rebates from any ATM worldwide, but the checking account must be linked to a Schwab One brokerage account.

Checking 

• High Yield Investor Checking: 0.40% APY
• Unlimited ATM rebates worldwide
• No service fees or account minimums
• Linked to a Schwab One brokerage account

Savings 

• High Yield Investor Savings: 0.50% APY for all clients
• Unlimited ATM rebates worldwide
• No service fees or account minimums

Once you’ve identified an online bank that meets your needs, follow Team Clark’s step-by-step guide to help you make the transition process as easy as possible.

More Clark.com stories you may like: 

Clark Howard: Why you need to give online banks another look

Thinking about switching your bank?

You’re probably familiar with credit unions as a superior alternative to traditional big banks, but you’d be wise to give online-only banks some consideration, too.

That’s because the online banks now offer some of the highest rates across a variety of banking products.

RELATED: Lots of banks are offering free cash: Should you bite?

Internet banks give you the best bang for your buck

How many times have you gone to your local bank branch or credit union in the past year? If you’re like most people, the answer is “not many.”

The advent of Internet banking on your smartphone has reduced the need for physical branches. If you’re fully comfortable with digital banking, there are a few compelling reasons why money expert Clark Howard says you should look at moving your money to an online bank.

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“Recently, I’ve had to rethink banking. It used to be a two-horse race between banks and credit unions,” Clark says. “But now online banks are the new low-cost place to bank.”

Clark notes the competition is really heating up in the online banking sector.

Ally and CIT deserve your attention

Ally Bank will give you a 1% bonus on any money you move over to their online banking services as part of its newly announced PayBack Promotion. You can earn up to $1,000 on a deposit of $100,000!

And if you’re somebody who likes to chase the highest interest rates, we’ve saved one of the best deals for last.

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CIT Bank is offering 2.30% APY on its Savings Builder account. To qualify for that rate, you need to either have an account balance of $25,000 or more OR make at least one deposit of $100 or more faithfully each month that you don’t have $25K on deposit.

If you fail to make that monthly deposit, the interest rate drops down to 1.26% APY for the following month. But if you make a deposit of $100 or more before the next month is over, you’ll get back up to the higher rate.

“Online banks are where all the action is right now in banking,” Clark says. “But it’s not just savings accounts; it’s about great deals on checking, CDs and so much more, too.”