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 Because savings funds are withdrawn through the card account, card transaction fees could reduce interest earned on the savings account.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.