About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Are 5% Savings Accounts from Prepaid Card Companies Good Deals?


Are 5% Savings Accounts from Prepaid Card Companies Good Deals?

Savers might not think about prepaid debit card companies as a place for their savings. But with advertised 5.00% savings accounts, it might make you want to take a look. NetSpend is one company that has long advertised a 5.00% APY on its savings account, and I just came across Mango which is advertising a 5.10% APY. Is it possible that these can be good deals for savers? In my preliminary review of these, I think there are too many potential gotchas.

NetSpend 5.00% Savings Account

My first review of NetSpend was in February 2010. As I described in that post, NetSpend has been offering this 5% APY since 2008. Most savers have probably never heard about NetSpend. This Austin Statesman article has a good overview of the company:

The company is a top provider in the fast-growing market for prepaid debit cards. They are aimed at customers who do not have traditional bank accounts but need an alternative to cash and money orders to pay bills and make purchases.

NetSpend doesn't have many details on this savings account on its website. There are some details in the small print at the bottom of their front page. It states that the savings account are issued by Inter National Bank (for INB Prepaid Cardholders) and by MetaBank (for MetaBank Prepaid Cardholders). Both of these banks are FDIC members. Here are the account details as described in the small print:

Interest is calculated on the Average Daily Balance of the savings account and paid quarterly. No minimum balance necessary to open account or obtain the yield. A cap may be placed on the maximum amount of funds maintained in the account. The cap may be exceeded by interest accruing on the funds. The cap may change. Because savings funds are withdrawn through the card account, card transaction fees could reduce interest earned on the savings account.

The two important things to note in the small print are that there's an unspecified cap on the balance and card transactions fees could reduce the interest. More reviews of the fees were done in this 2010 Fatwallet thread.

Mango 5.10% Savings Account

A balance cap is a major issue that can make a high yield of little value. Unlike Netspend, Mango is more open on its balance cap. Here's what it states in the small print:

The APY advertised applies only to the portion of your savings account balance which is $5,000.00 or less. An interest rate of 0.10% will be paid on the portion of your savings account balance which exceeds $5,000.00. Fees could reduce the earnings on your savings account.

Also, the 5.10% APY is listed as a promotional APY. The savings account customer agreement lists the standard rate as 3.00% APY for up to $5K.

Even with a 5% APY, a $5K balance cap pretty much kills the deal. If you maintain $5K and the APY holds for an entire year, you'll make only $250 in interest. As a comparison, you will earn $50 if the interest rate is 1.00%.

According to Mango's FAQs, "Mango customers enrolled in recurring direct deposit* can get a savings account. There is no cost to open a Mango savings account and no fees to maintain it." However, from these FAQs, it appears the only way to transfer money in or out is through the prepaid card. As you can see in their prepaid card fees page, there are many potential fees.

Similar to the Citi 4% Secured CD Deal?

Based on the small print, I don't think these prepaid card savings accounts are the good deals like what many readers received from Citibank and its 4.07% 18-month CD that was part of the secured credit card program. Several readers were able to open one or more of these CDs with $25K in each CD. However, as you can see in this Citi 4% Secured CD thread, there were many concerns about quickly receiving the money at maturity. Most of Citibank customer service representatives had little experience with this CD and often gave different answers to questions. According to one reader, "8 out of 10 people I had contact with could NOT answer my simple questions."

Just like that Citibank CD deal, you may be able to profit from these prepaid card savings accounts. However, just like that CD deal, don't expect it to be a hassle-free experience. It's very likely that the extra interest that you earn won't make up for the extra hassles and worries.

Fewer Deals for Savers

Savers can sometimes profit from financial products that are designed for spenders. Examples include cash-back credit cards, credit card balance transfers and reward checking accounts. Banks hope they attract enough spenders who pay a lot of fees and interest that they will cover the costs of savers who know how to game the system. We hope that savers are a small enough minority, that we go unnoticed while the spenders subsidize our rewards. With banks desperate for profits, banks have been paying more attention to savers who are costing them. Credit card cash back and balance transfer deals have gone down, and we have seen many reward checking accounts cut rates and balance caps.

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ichaelm   |     |   Comment #1
Note in the T&C of the NetSpend card, if you want to close the account and withdraw your funds, if your balance exceeds the maximum amount that you can withdraw from an ATM (which it almost certainly would if you want to take advantage of the 5% offer), they will mail you a check "within 3 or 4 weeks."
Anonymous   |     |   Comment #2
Some types of savings accounts are just odd, like those at Korean-American banks like Wilshire State Bamk, which I think still features 1-2 year 2% installment savings CD's.
Anonymous   |     |   Comment #3
Well, I was one of the folks who took advantage of the Citi secured 4.07 18 month CD 17 months ago. Actually I took advantge of two of these CDs. I had quite a bit of reservation with Citi and even call corporate regarding the CD maturing process.  Everyone I contacted at the time was clueless.  But it appears everything is working out fine.  Last week I received notification from Citi that they were going to send me a check with interest within 10 days of of the mature date.  Not perfect but acceptable.
S Dot
S Dot   |     |   Comment #4
The best online savings account without hidden print is ING Direct and ALLY. These institutions don't hold on to your funds when you need to close the account. Also the great thing about these online savings accounts is that when you need to transfer the entire balance to an outside bank it only takes three days maximum. Then you can request for it to close out. Also they don't require you to open a separate account to fund it. Your rate is the same whether you have $1 or $10000.
myunionprepaid   |     |   Comment #5
Check out http://www.myunionprepaid.com for the same 5.10% interest rate. Yes, there is a cap at $5000.00 but for those who don't have the money to deposit $5000 at once this allows you to open an account for as little as $1.00 and begin saving with no fees.

Also, you can access the deposited cash within minutes at any ATM or spend at any location that accepts Visa/Mastercard. There is no delay in accessing the funds.
Anonymous   |     |   Comment #6
We opened 2 Citibank Secured cd's.  I've never had so many problems as we did with that one.  Upon maturity, rather than sending us our funds back, it was put as a credit on the credit card.  A large amount.  Tooks months to get straightened out.  I would not do it again.  I was able to find one fellow in all of Citibank that knew what he was doing.  Everyone else had no idea of what I was even talking about. 
Anurag   |     |   Comment #7
I agree with Anynymous #6 - whenever I called citi regarding this CD they did not know what I was talking about. Most of CSRs do not know the products itself. I never was able to see my CD online except in statements. Finally, they returned all the funds within a week of CD matured by mail and they left the CL as it was (20K).
Anonymous   |     |   Comment #8
Stay AWAY from Mango Money. I had the same experience plenty of other people have had (read here: http://credit.about.com/u/r/od/prepaidcardreviews/fr/Mango-Mastercard-Prepaid-Card-Review.htm or here: http://www.ripoffreport.com/r/mangomoneycom/internet/mangomoneycom-mango-money-Mango-will-close-your-account-if-you-want-to-use-your-money-do-951838 or here: http://www.bbb.org/central-texas/Business-Reviews/prepaid-debit-credit-cards/mango-financial-inc-in-austin-tx-90081498/Complaints#breakdown

I had over $1000 of my money direct deposited here, which meant I was no longer eligible for monthly fees, exactly following their instructions, and one day my account was locked, I had no access to my own money and they told me they would mail me a check minus a $10 "processing fee." All this because I didn't pass a "security check" they never notified me of. 

They clearly only want people who they can hit for a monthly fee so this is a total bait and switch with their marketing of high interest offers. This company is not selling the product they are advertising. IF YOU VALUE YOUR HARD EARNED MONEY STAY AWAY FROM MANGO FINANCIAL as they are not on the up and up. 
Anonymous   |     |   Comment #9
Im doing both the prepaid paypal and mango. Mango - 5000.00 at 6% with 3$ fee/monthly = 264/annuallyPaypal - 5000.00 at 5% with 4.95 fee/monthly = 190.60/annually
= 454.60/annually
if you have 10k laying around its a great low risk place to put your money for 5-10 years. We'll see how drastically the rates change. most other 1% savings account wont see that kind of annual return in a year unless you have 50-100,000.