Troubling Features of Green Dot Bank’s Savings and Cash Back Accounts

Green Dot Bank has been heavily advertising on TV its checking account which it calls the Unlimited Cash Back Bank Account. The commercials also mention Green Dot Bank’s High-Yield Savings Account. The checking account currently offers an unlimited 3% cash back on certain debit card purchases, and the savings account offers a 3.00% APY. These sound like great deals until you become aware of the details. As the saying goes, the devil is in the details. Savers who open these accounts with hopes of earning 3% may end up paying almost $100 in fees and earning no interest after their first year.

The details of these Green Dot Bank accounts are listed in the FAQs and in the deposit account agreement at the Bank’s website. The checking account has fewer issues than the savings account.

Downsides of the Unlimited Cash Back Bank Account:

• Takes one year before you can receive the cash back bonus
• Monthly maintenance fee of $7.95
• To have the maintenance fee waived, at least $1,000 of debit card purchases per month are required.
• Only online or in-app debit card purchases qualify for the 3% cash back. Using the debit card at physical stores and restaurants do not qualify for the 3% cash back.
• $5.95 fee for a pack of only 12 paper checks. According to the deposit account agreement, “We will reject any checks that you do not purchase through us, such as checks you order from a check printing service.”

An unlimited 3% cash back bonus on debit card purchases is nice, but a one-year period before you receive the bonus is a long wait. The FAQ that answers “What is a bonus year” provides more details:

A Bonus year is 12 monthly periods during which your account has been in good standing.

[ … ]

You must successfully complete a Bonus year to be eligible to redeem your unlimited 3% Cash Back Bonus.

It’s also important to note that using your debit card at brick-and-mortar stores and restaurants will not qualify for the 3% cash back. As described in the deposit account agreement:

You can only earn a Cash Back bonus when you make online or in-app purchases through the use of your Green Dot debit card account.

Also, there are exceptions to online and in-app purchases. The most noteworthy one is airline purchases.

Not all of the features of the Unlimited Cash Back Bank Account are negative. If you make a lot of online purchases and you don’t mind the long wait to collect the cash back bonus, you may come out okay.

Green Dot Bank does provide a unique way customers can make cash deposits. At participating retailers, you can use Green Dot Bank’s app to deposit cash into your account without a fee. Most online-only banks don’t offer a direct option for cash deposits. The easiest way is typically to deposit cash at your local bank or credit union that has been linked to your online account. Once your money is in your local bank account, you can initiate an ACH transfer into the online-only account.

Downsides of the High-Yield Savings Account:

In my opinion, Green Dot Bank’s High-Yield Savings Account has the most troubling features that may result in customers earning no interest for their first year. I’ve listed these features below.

• “Interest is paid on the 12 month anniversary of when you opened your main account, and is based on the average daily balance of the prior 365 days up to a maximum balance of $10,000.” (per FAQ)
• “If you close your account before the annual interest is credited to your High-Yield Savings Account, you will not receive the interest.” (per deposit account disclosure)
• “You will not earn interest on any average daily balance that exceeds $10,000.” (per deposit account disclosure)
• ”The High-Yield Savings Account is ONLY available with the Unlimited Cash Back Bank Account.” (per FAQ)
• Even though there are no monthly fees associated with the High-Yield Savings Account, you will still have to worry about a $7.95 monthly maintenance fee on the Unlimited Cash Back Bank Account.
• ”The only way to access money in your High-Yield Savings Account is to transfer money held in your savings account into your primary deposit account by using the app.” (per deposit account agreement). It appears the “primary deposit account” has to be the Unlimited Cash Back Bank Account.
• The APY may “change before or after you open an account” (per website’s small print)

The first downside is that you have to wait an entire year before the interest is credited to your account. This is much different than the typical savings accounts in which interest is credited each month. One thing I did not see in the small print is what happens if you should close the account. This leads to the second downside. According to the deposit account agreement, “If you close your account before the annual interest is credited to your High-Yield Savings Account, you will not receive the interest.” So if you want to close your accounts to avoid the monthly maintenance fee, you could lose out on up to one year of interest.

The third downside that is mentioned in the commercials and on the website is that the 3% APY only applies to balances up to $10,000. An important question is what happens if your balance exceeds $10,000. According to the deposit account agreement, that could result in forfeiting any interest earnings. The following is an excerpt from the agreement:

Interest will be applied to a maximum average daily balance of $10,000. You will not earn interest on any average daily balance that exceeds $10,000.

This balance cap sounds similar to the balance caps that most reward checking accounts have. However, most reward checking accounts have blended APYs. When your balance exceeds the cap, the reduced interest rate is applied only to the portion of the balance that exceeds the cap. Thus, you still receive the maximum interest rate up to the balance cap. Then you receive a reduced interest rate on the portion above the balance cap. Averaging these two together and factoring in compounding results in a blended APY that slowly drifts down as your balance grows past the cap.

Green Dot Bank has no mention that its savings account has a blended APY for balances over $10,000. Based on what is in the deposit account agreement, the APY falls from 3% to 0% if your average daily balance was over $10,000 for the year. I tried to receive confirmation by calling the bank’s customer support number, but I heard of no option to talk with a human if you were not already a customer. If Green Dot Bank does provide a blended APY for balances above $10,000, that should be clearly described in the account agreement and the FAQs.

Could you imagine the shock of a saver who waits an entire year to receive what they expect will be close to $300 of interest and finds out that they actually earned no interest since their average daily balance exceeded $10k?

My Take

Even for those who don’t have large savings, I don’t think Green Dot Bank is worth the effort for most. It could be possible for the Green Dot Bank accounts to be a good deal if you can make the necessary online/in-app purchases to qualify for the 3% cash back and avoid the monthly fees. And you have to ensure your savings account balance remains under $10,000.

To qualify for the 3% cash back and to avoid the monthly fees, you’ll have to maintain a significant balance in the checking account which pays no interest. So that will offset some of the 3% cash back and 3% savings account APY. Also, you’ll have to be patient and wait for an entire year before you receive the cash back and interest. During that time, you’ll have to hope the cash back and interest rate don’t fall to low levels. If they do fall, you won’t be able to just move your money and use another bank. If you don’t maintain the required debit card activity, you’ll be hit with the monthly fee. If you close the account before the year is over, you’ll lose out on your accrued cash back bonus and savings account interest.

Availability

Headquartered in Provo, Utah, Green Dot Bank is an online-only bank. Account management can only be done via Green Dot Bank’s website or its mobile app. Account opening can either be done online or in-store at Green Dot participating retailers. Online account opening requires the typical personal information for bank accounts, including your name, home address, phone number, email address, date of birth and Social Security number. For in-store account opening, a temporary prepaid card can be purchased. You then Must register the card online or through the Green Dot app and provide your personal information.

Bank Overview

Unlike many other financial technology companies, Green Dot Bank is an actual FDIC-insured bank.

Green Dot Bank has an overall health grade of "B+" rating at DepositAccounts.com, with a Texas Ratio of 1.19% (excellent) based on December 31, 2019 data. The primary reason that the overall health grade isn’t an “A” is due to poor deposit growth in the past year. Total non-brokered deposits have declined by $85.46 million in the past year, a decline of 35.85%. Please refer to our financial overview of Green Dot Bank (FDIC Certificate # 22653) for more details.

Green Dot Bank is a subsidiary of Green Dot Corporation which was founded in 1999 under the name Next Estate Communications. The company quickly became a major player in the prepaid debit card industry. In 2002, the first Green Dot debit cards were sold at CVS and Rite Aid stores. The company went public in 2010, and then in 2011, it acquired Bonneville Bank, which gave it the ability to directly offer FDIC-insured checking and savings accounts. Green Dot Bank’s exposure grew in 2014 when a partnership with Wal-Mart was announced to offer checking accounts to Wal-Mart customers.

In 2013, Green Dot Bank launched GoBank, offering the first checking account designed to be opened and managed with a mobile app. The GoBank accounts are intended to be more for the banking underserved who may have trouble passing credit checks or ChexSystems reviews.

How the Green Dot Bank Accounts Compare

For savers looking to earn more interest, a high-yield reward checking account would likely be a better option. There are still many reward checking accounts that offer rates of 3% and higher on balances up to $25k. Most of these reward checking accounts require monthly debit card usage to qualify for the high interest rate. Unlike the Green Dot Bank accounts, reward checking accounts typically do not charge monthly maintenance fees. For the case of Kasasa accounts, there are never any monthly maintenance fees.

For savers who want to earn both high interest rates and cash back rewards, reward checking options are limited. One nationally-available reward checking account, the R2 Checking from GreenState Credit Union offers both a high interest rate and reward points for credit card purchases.

Another option for savers is to use both an online savings account with a cash back credit card. The online savings account can provide a high interest rate, while certain credit cards can offer unlimited cash back of 2%. Online savings accounts currently don’t offer interest rates close to 3%. Rates will likely fall to around 1% in the current interest rate environment. Nevertheless, online savings accounts typically don’t have balance caps or monthly maintenance fees. Also, the vast majority of online savings accounts credit accrued interest monthly rather than yearly.

For most savers, these other alternatives for bank accounts with high yields and for debit/credit cards with cash back rewards have more benefits and fewer gotchas than the Green Dot Bank accounts.

The above rates are accurate as of 4/30/2020.

Please refer to the DepositAccounts.com’s Checking Account Rates page and Reward Checking Account Rates page for other checking options, and please refer to the Savings Account Rates page and Money Market Account Rates page for other options to earn higher yields on liquid savings.