PayPal 101

A reader comment regarding PayPal's fees inspired me to post a cheat sheet for anyone considering opening or upgrading a PayPal account.

It's my guess that most people don't read PayPal's Legal Agreements, which is of course what they're hoping for. It's easier to hit users with sneaky changes to their terms of service if the users don't read the legal agreements and don't know that it's their responsibility to stay up-to-date on them. I certainly didn't — as I already mentioned, if it hadn't been for a client's mistake, I wouldn't have even known about PayPal's new $500 limit.

So for all of you who are prone to checking the "I Agree" box without reading what you are agreeing to, here is the rundown:

PayPal has 3 types of accounts: personal, premier, and business.

The personal account:
Fees on outgoing payments: None.
Fees on incoming account transfers: None.
Fees on incoming credit/debit card payments: $0.30 + 4.9 percent for domestic payments; $0.30 + 5.9 percent for foreign payments.
Limits on incoming payments: $500 per month (if you go over this, you will be forced to upgrade your account in order to receive your money).
Limits on incoming credit/debit card payments: 5 per year.

The premier and business accounts:
Fees on outgoing payments: None.
Fees on all incoming payments: $0.30 + 2.9 percent for domestic payments; $0.30 + 3.9 percent for foreign payments.
Fees on all incoming payments if you qualify for merchant rates: $0.30 + 1.9-2.5 percent for domestic payments; $0.30 + 2.9-3.5 percent for foreign payments.
How to qualify for merchant rates: Fill out a one-time application and meet an unnamed (and possible arbitrary?) level of transaction activity every month.

All accounts:
Fee for transferring money electronically to your bank account: None, but is estimated to take 3-5 days.
Fee for withdrawing money from an ATM using your PayPal ATM/debit card: $1 per transaction.
Fee for requesting a withdrawal in the form of a check: $1.50 per check.
Fee for withdrawing money from a bank that requires a signature using your PayPal ATM/debit card: $3 per transaction (!).

My comments:

1) Even a personal account is not really "free" anymore, if you take advantage of the 5 credit/debit card payments you are allowed every year. Plus, you're on a very tight leash and could be forced to upgrade to a more expensive account if you are paid more than $500 in a single month (even if you never get that much again).

2) The fees for receiving credit/debit card payments on a personal account are nearly twice what they are on the premier and business accounts.

3) The fees on the premier and business accounts are ridiculously high unless you qualify for merchant status, but they don't state in their legal agreements how much you have to receive each month in order to do so.

4) The time estimate on the electronic withdrawal (3-5 days) may be overstated in order to make the debit card, with its $1-a-pop fee, seem more appealing. Withdrawals to my bank account are usually completed within 2 days.

5) Why does a signature cost you $2 when you withdraw money from a bank using your ATM/debit card?

All of this information comes directly from PayPal's Legal Agreements as it appears on March 9, 2008. Of course, PayPal reserves the right to change any and all of this at any time, and without really telling you. If you want to know about upcoming changes, you will have to regularly check the "Policy Updates" page of their website, to which of course they don't provide you with a link — you have to find it yourself. I've done the legwork for you, though, and you can find it here: PayPal Policy Updates.