What Is a PayPal External Account?

Definition
A PayPal external account generally refers to any bank, credit union or escrow account you link to a PayPal account. It is called external because the external account is not operated primarily by PayPal.
Purpose and Advantages
It is possible to create a PayPal account and use that account without linking it to an external account. However, using an external account with your PayPal account has three major advantages. The first is that you can transfer money between your PayPal account and the external account. The second is that the external account may act as a secondary funding source, should you make a purchase via Paypal that exceeds the amount of funds in the PayPal account. You also can use the external account to pay a vendor or send money via PayPal, even if your primary PayPal account balance is zero.
Setting Up the Account
Setting up a PayPal external account takes just a few minutes, as the process has only five major steps. First, sign in to your PayPal account. Under the 'My Account' tab, click 'Profile.' Then select 'Add or Edit Bank Account.' Enter the information requested for your external account of choice. Although it doesn't take long to give PayPal the data necessary to link your PayPal and external account, PayPal may take two to three days to confirm the information you've provided. PayPal sometimes confirms the data in as little as a few minutes if you already bank online with your external account, however. During this verification period, you will not be able to use the services PayPal offers for external accounts, such as transferring money from PayPal to your bank. You can check the verification process by logging in to your PayPal account and looking for a deposit into your external account --- the deposit is just a few cents, just enough to confirm the existence of the account and check that everything works. Once you see this activity when you log in to PayPal, you'll need to confirm the external account using the value of the deposits --- this is the last step in the setup process.
Considerations
Most financial institutions have limitations on who can open a financial account. For instance, you typically must be a resident of the country where you'd like to open the account; and because of contract laws, you may have to get a joint account if you want an account as a minor. PayPal, as a financial company, follows these regulations. The user agreement specifically states that, in the United States, 'you must be at least 18 years old and a resident of the United States or one of the countries listed on the PayPal WorldWide page' to have a PayPal account. Additionally, although you can open, accept and send money from a PayPal account in many countries, due to banking regulation variances, you typically cannot open a PayPal account in one country and link it to an external account from another nation.