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My question is when someone sends me money does it go into my paypal balance for me to transfer in to another account I choose Or does it automatically go into the bank account I have set up to make payments or send money from?
When someone pays you it is credited to your Paypal account balance.
You can then withdraw the funds to any linked bank account or debit card (in your country).
If you are selling make sure you read up on Paypal seller protection so you can risk assess your transactions.