The Federal Reserve raised interest rates by another 0.25% recently, and that’s a good thing for people saving in a savings account, because a hike in the “Fed Rate” usually results in an increase of the interest rate savings accounts pay. But still, another 0.25% is not going to raise interest rates to the magical levels they were back in the good ol’ days before the Global Financial Crisis of Doom. Back then, you could get 5% interest from online savings accounts! Except, here’s the crazy thing: I have a 5% savings account. FDIC-insured and everything. Wait—but how?
The big national bank chains are paying tiny percentages on their savings accounts. For example, I just looked at Bank of America, and as of this writing they’re offering 0.06% on their savings accounts, and only then if you’ve got more than $2,500 in the account and you have to be one of their “Preferred Rewards Platinum Honors Tier” customers (aka have more than $100,000 in accounts with them—yikes!). And that’s just to get 0.06% on your savings. Not 6%, or even 0.6%, but 0.06%. Which is practically nothing, and is way less than inflation… meaning your money still loses buying power over time with that interest rate.
So again… how the heck am I getting 5% when the big banks are offering a pittance compared to that?
Prepaid Debit Cards Offering 5% APY Savings Accounts
The answer is, surprisingly, prepaid debit cards. Yes, the kind that the “unbanked” population might use if there are no convenient bank locations or if they can’t get a checking account because of a bad history of overdrafting. These prepaid debit cards can be filled with fees, but many of them offer a “pay as you go” type plan that means you only pay a fee when you use the debit card like, well, a debit card.
And some of them also offer the ability to open a savings account with your debit card. And as an incentive to get the debit card, some of those offer ridiculously high interest rates (APY – “average percentage yield”). So that’s what you’re looking for—prepaid debt cards that meet all three criteria:
- A “pay as you go” fee plan that means you pay no fees as long as you don’t actually use the debit card
- The ability to open a savings account on the card
- That savings account needs to pay a much higher than average APY (interest rate)
I’ve found two cards that meet all three criteria: NetSpend
and Insight Card. [Update, June 2018: Unfortunately, Insight Card is discontinuing their savings program at the end of this month. I’m currently on the hunt for what I’ll use to replace it and then I’ll update this post further. Doctor of Credit has a good list of places to start your own search for a new mega-high-yield account!]
Are There a Lot of Hoops To Jump Through to Get 5% Interest?
There are hoops, but not what I would call a lot of hoops. Just 3, and they’re pretty easy hoops at that:
- You have to log into the debit card’s online dashboard and manually move money from the debit card to the savings account every time you want to deposit money into the savings account. There is no direct deposit from your regular bank account directly into the savings account—you have to go through the debit card. (Same thing when you want to take money out, but in reverse. You’ve got to go to their website and move the money back to the debit card before your regular bank account can transfer it out.)
- You have to have a transaction more often than once every 90 days on each debit card to avoid any “account inactivity fees.” Thankfully, you can just schedule an automatic monthly deposit of $1 from your regular bank account. I’ll walk you through this, but it’s really as easy as it sounds.
- Each prepaid debit card has a limit on the amount they will pay 5% interest. For each NetSpend card, it’s on up to $1000. But there are 6 different varieties of the NetSpend card, so that’s up to $6,000 per person (or $12,000 for a couple). It’s the opening of additional cards that’s the “hoop,” but that’s also really easy (you can do it online).
Thus endeth the short version. For more details, keep reading!
NetSpend: the “Starter Card” With a $20 Opening Bonus
NetSpend where you want to start, for three reasons:
- They offer a $20 bonus when you sign up using a refer-a-friend link (hey-o, like my refer-a-friend link! I also get $20 when you use this link, which is handy because that money helps keep this blog running).
- Their user interface is friendly, so it’s a good way to learn.
- They pay 5% on the first $1000 in the savings account, which is a decent amount but not crazy. So if you’re not a super-saver yet, best to go with NetSpend first and move on to other accounts once you’ve filled up that $1000. And if you’ve got more than $1000? It’s still a good place to start and see if this whole “prepaid debit card savings account” thing is right for you.
You Will Need:
- An account (preferably a checking account, but a savings account will also work) with a bank that allows you to set up automatic transfers to accounts at other banks. I’ll refer to this account from here on out as your “Existing Account.” As in, the one that already exists when you start down this road.
- $40 in the existing account that you can transfer to NetSpend to get the $20 bonus.
That’s it. It’s a 2-item list of things you need. This is going to be pretty easy!
Why “preferably a checking account?” Because savings accounts have federal limits on how many times you can take money out of them each month (savings accounts are limited to 6 transfers out per month). Checking accounts have no such limits. This won’t be a big deal if you just set up 1 NetSpend account don’t take money out of your existing savings account for any other reason. But if you end up setting up 5 or 6 NetSpend accounts each for you and your spouse/partner plus other accounts, using just the one savings account, you’d start to run afoul of the transfer limits for savings accounts. So you can either use multiple savings accounts in that scenario… or a checking account.
One additional caveat: Capital One 360 will not work as your “existing account” for NetSpend, because they refuse to let you connect your Capital One 360 account to NetSpend. You’ll need to use a bank other than Capital One 360 for the NetSpend account.
How To Open a NetSpend Prepaid Debit Card (and get your $20 bonus)
It’s pretty easy: my NetSpend refer-a-friend link takes you right to the application page. Fill in the form and make sure that the “Referral Code” box is pre-filled with “8601849552” to qualify for the $20 bonus. Where it asks “Which of the following payments would you like to receive faster with Direct Deposit?” you can simply select “None at this time.” You can select whatever design for the card you like, but it doesn’t matter because you’re going to throw the card into a safe or the back of your underwear drawer.
Time to hurry up and wait 7-10 days for the card to come in the mail. Bookmark this blog post and come back when your card arrives.
Got Your NetSpend Card in Your Hand? (Welcome Back!)
Now follow the card’s activation instructions and be sure to decline any offer while activating to change from the “pay as you go” plan. The “pay as you go” plan is how you’ll avoid any fees. (There’s one more step to avoiding fees – we’ll get to that in just a second.)
Next, log onto your Existing Account and find the place to “link an external account” (this will vary depending on which bank you’re using for your existing account, but it’s generally under “External Accounts” or “Settings”). Use the Routing Number and Account Number from your NetSpend card (they’re in your NetSpend dashboard under “Direct Deposit” if you threw out the paperwork that came with the card). You’ll probably have to wait another 2-3 days for your Existing Account to send 2 small deposits to your NetSpend account for verification. But that’s normal and some banks don’t even take the 2 small deposits back from NetSpend, so that’s like $0.30-$0.50 extra right there! (Cha-ching!)
Then, just transfer the $40 from your Existing Account to NetSpend, and you’ll have your $20 bonus! My bonus posted the very same day the $40 transfer hit my NetSpend account. Woohoo, $20!
Got a spouse or partner? You can get another $40 in bonuses! Just send your referral link (find it in your NetSpend dashboard under “Features”>”Refer a Friend”) to your spouse/partner and have them follow the steps above. They’ll get the $20 bonus and you’ll get another $20 bonus—weehoo!
But you’re not here just for that free bonus money. You want to earn 5% on the $60 that you now have in the account(s)… and on the $940 more that you’re going to put in there. So let’s continue on!
Opening the NetSpend Savings Account Part and Getting Your 5% Interest
In NetSpend’s dashboard, click “Move Money” and then select “Enroll in Savings.”
Click the green “Enroll in Savings” button here and voilà! Your 5%-interest-bearing savings account is now open for business.
As I said in the “hoops” section above, you’ll need to move money manually from the debit card part (NetSpend calls this your “Prepaid Account“) and the savings account part (NetSpend calls this your “Savings Account”). They will not let you deposit money directly into the savings account from your Existing Account. No biggie, though. Just transfer the money from your Existing Account (remember, always push or pull from the Existing Account to avoid fees!) to the debit card (“Prepaid Account”). Then come back to the NetSpend dashboard “Move Money” section and click “Savings Transfer” to move it and start earning 5% on it.
Automate Regular Deposits to Your NetSpend Card to Avoid “Inactivity Fees”
Ah yes, the other hoop. Again, this is pretty easy, so don’t sweat it. In your “Existing Account,” set up an automated recurring transaction of $1 monthly from the Existing Account to the NetSpend card account. If you want to get fancy with it, you can set one up quarterly to push $1 to NetSpend and another one for 45 days later to pull that same $1 back out.
As long as you have a transaction on the debit card (“Prepaid Account”) more often than once every 90 days, you’ll be golden.
What Happens Once You Have $1,000 in Your NetSpend Savings Account
Straight from NetSpend’s terms & conditions (pulled on April 13th, 2018):
For that portion of the savings account that is $1,000.01, or more, the interest rate will be 0.49% with an annual percentage yield with an annual percentage yield [sic] of 0.50%.
So, in other words, every penny in the savings account above $1,000 earns just 0.50% interest. That’s… not great. Especially not compared to the 5% interest the first $1,000 is earning. And not compared to other online savings accounts, either—you can easily find accounts paying twice that these days.
I go in and take the interest paid on my NetSpend account out (transfer it back to the debit card part, the “Prepaid Account,” then have my Existing Account pull the interest amount back) every quarter, right after NetSpend pays it. I have a little calendar reminder on January 1st (and April 1st, July 1st, October 1st) to go in and do it.
You might be thinking that all this “moving interest” business should count toward the transactions to help you avoid the inactivity fee. And yes, moving the interest from the “Savings Account” to the “Prepaid Account” seems to count as one transaction, and then pulling it from the Prepaid Account to your Existing Account is another one transaction. But since these two transactions have to be done manually, you might forget. Might as well automate and not count on those two transactions and just make sure all of your bases are covered by automated transactions.
Where do I put the interest after I pull it out to my Existing Account? Why, it goes into the next account! Once you’ve got $1,000 in the NetSpend account, it’s time for you to open the next account.
There are up to 5 other “branded” NetSpend cards you can open. These are connected to companies like PayPal, H-E-B, and Western Union, but under the brand “wrapping” they are just additional NetSpend cards you can open. The biggest difference is that only the plain NetSpend card (from above) offered the refer-a-friend bonus, but they all offer the 5% interest savings for the first $1,000, giving you a total of $6,000 per person (or $12,000 per couple) in 5% interest savings “space.”
That’s it. That’s seriously it. That’s how I get a 5% interest rate, FDIC-insured. Just by opening accounts at the right places and setting up automatic transfers to avoid fees. If you’re not getting 5% on your savings accounts, it’s time to set up your NetSpend account and get that FREE MONEY!
Did any of this seem confusing? Not clear on something? Check out Financial Panther’s step-by-step guide to the NetSpend card. His guide is super duper thorough and really does take you step by step. I wrote my own guide above because I was sending the Financial Panther link to some people and they felt overwhelmed. I wanted to show that it’s really pretty simple with a simpler guide. But Financial Panther covers pretty much every scenario and “what if” so if you’re stuck or having trouble, that thorough guide can truly help. If you do use his guide, be sure to use his NetSpend referral link instead of mine, because goodness knows he should be paid for all the work he did!
Hat tip to Jim Wang over at Wallet Hacks for first introducing me to the NetSpend card.