[Updated on May 24, 2014 after receiving notification that the monthly fee will change from $5 to $3 effective June 15, 2014.]
Today we are going to look at something off the beaten path in our pursuit to double the bond yield. If you follow my footpath, you will find a hidden gem.
I didn’t find it myself. I learned from Bogleheads investment forum participant boglestan.
Mango Prepaid Card is one of many prepaid cards marketed primarily to the unbanked and underbanked population. For more on prepaid cards, please read the previous post Who Use Prepaid Debit Cards. As a competitive edge, the Mango prepaid card offers a linked savings account that pays 6% APY.
Think of the savings account as a lake and the prepaid card as the path leading to it. The only way to get money into or out of the savings account would be through the prepaid card. The money on the card and the money in the savings account are separate, and they are both FDIC insured. So no worries there.
You first transfer money by ACH onto the card. After the money appears on the card, you transfer the money to the savings account. The money then stays in the savings account, pretty much walled off from the card. If there’s no money on the card, using the card to buy stuff will get a decline even though you have money in the savings account.
6% APY is applied to the first $5,000 in the savings account (0.1% for the portion above $5,000). You will need to have direct deposit to the card in order to keep the 6% rate. No problem, just schedule a monthly recurring ACH transfer from your bank account.
There is a $3 monthly fee. The 6% APY you earn on your $5,000 in the savings account makes up for it several times over.
After all said and done, taking into account the initial $5,000 plus a $50 per month deposit and the $3 monthly fee, you end up getting a 4.6% yield on an average balance of $5,263. That’s $240/year with the Mango card compared to less than $50/year if you leave your $5,000 and the $50/month in a regular “high yield” savings account that pays less than 1%.
Promo Rate Ending Soon?
Is 6% APY a short-lived promo that will end soon? Of course every bank reserves the right to change the rate at any time. Even the rate on a “high yield” savings account isn’t necessarily guaranteed to be the same next month. But I’m willing to bet Mango’s rate will stay high for a long time. When other banks lowered rates on their savings accounts, Mango actually raised it. It used to be 5.1%. Now it’s 6%.
The more people are skeptical about it, the more likely the 6% rate will stay. The fact that the typical unbanked and underbanked customers don’t have $5,000 in their savings accounts makes the total cost for the 6% APY savings account not that high.
What if the 6% does end? No big deal. You close the account. They will send you a check.
Follow these exact steps for the maximum benefit:
1. Open an account online at mangomoney.com. The very simple form takes only two minutes. There is no credit check.
2. Click on Direct Deposit when you are done opening the account. You will be given a bank routing number 114994196 and an account number. Your Mango account starts with a negative balance for the first monthly fee.
3. Link the Mango account as an external bank account on your bank’s web site.
Be careful with banks that confirm the link by random deposits but pull the random deposits back. Because Mango doesn’t allow pulling back when the account is negative, this may cause problems with confirming the link. It’s best to use a bank that doesn’t pull back the random deposits.
Some readers reported their banks don’t recognize the routing number 114994196 for First Bank & Trust, which is the bank where your money will be held. It’s not clear why; that routing number is correct and valid. You just have to use a bank that recognizes it. These institutions are known to recognize it:
- Alliant Credit Union
- Capital One 360 Person2Person
- Chase (bring the balance to positive first)
- CIT Bank
- Fidelity Investments
- Navy Federal Credit Union
- Sallie Mae Bank
- TIAA Direct
These banks have been reported as not recognizing the routing number:
- Bank of America
- Capital One (regular ACH)
- Discover Bank
- PNC Bank
- Wells Fargo
Please report your successes or problems with linking the routing number to your bank account so I can add them to the applicable list.
4. Transfer $5,010 from your bank to the Mango account. Also schedule a recurring monthly transfer of $50 starting 40 days from that day.
5. Open the saving account. When the $5,010 arrives, click on Mango Savings to open a savings account. Transfer $5,000 from the card to the savings account.
If you also get a one-time bonus after a few months for the monthly transfers, all the better. If you don’t get the bonus and you care about it, call customer service. Customer service is US-based and quite friendly when I called.
6. Run it on autopilot after the initial setup. Every month $50 arrives on the card. It keeps your savings account at 6% and it pays the $3 monthly fee.
After six months to a year, if it bothers you that your money on the card is earning nothing, you can withdraw the excess. They are not blocking ACH withdrawals but I wouldn’t make a habit of withdrawing monthly. The 4.6% effective rate I calculated assumes you withdraw annually. It’s already a good return. You don’t have to push it by withdrawing more frequently.
This opportunity is available only to individual savers. It’s safe (FDIC insured). After a one-time setup, you just sit back and collect the higher interest. If you are married you can get one card for each person. That will make it equivalent to $10k earning the 4.6% rate.
The same company also offers a similar program called Union Plus Prepaid Card. Get both and double your opportunity.
[Photo credit: Flickr user Roger Lynn.]