NetSpend is a pioneer in prepaid cards. It’s now part of TSYS, a NYSE-listed credit card processor with $2.5 billion in annual revenue. A prepaid card from NetSpend comes with a 5% savings account for up to $1,000 with no monthly fee. The card and savings account are provided by MetaBank, with full FDIC insurance.
[Updated on June 1, 2016. The maximum amount earning 5% drops from $5,000 to $1,000 starting on July 1, 2016.]
It was very easy to set one up. Here are the steps. Remember to follow these in sequence. Don’t jump ahead too quickly.
1. Order a card. You go to netspend.com and order a card. You give your name, address, and email. You set up a user id and password. If you want extra $20, click on this refer-a-friend link when you order your card (I will get $20 too).
2. Activate card. You will get a card in the mail in about a week. When you activate the card online, you will see a routing number and account number for transferring money to the card by ACH from your bank.
The card mailer comes with a required privacy notice. If you’d like to opt-out of information sharing, call the privacy opt-out phone number now, after you activate the card. Waiting until later may get your savings account closed.
3. Set up ACH. You add the routing number and account number from NetSpend as a linked external account in your own checking account. Make sure the name on your checking account matches the name on your card, otherwise NetSpend may flag the account when they see a deposit coming from a bank account with a different name.
Some banks such as Citibank and Wells Fargo don’t recognize MetaBank’s routing number 073972181. Just try a different bank. I use Alliant Credit Union, which anyone can join as a PTA member or by making a one-time $10 donation to a supported charity for foster children. Ally, Capital One, Chase, and Santander also work.
4. ACH Deposit. Transfer $1,005 from your checking account to the NetSpend card. After the money arrives, click on Move Money -> Savings and follow the steps there to open a savings account. Transfer $1,000 from the card to the savings account. $5 stays on the card.
You will get an email about qualifying for a low $5/month Fee Advantage Plan. Ignore it if you don’t plan to use the card often for purchases or ATM withdrawals. The fee-per-use plan you started with has no monthly fee. In about another week you will also get a new Premier card in the mail. Put it aside; don’t activate it.
5. Set up recurring ACH. Set up in your checking account a recurring ACH transfer of $2 every 2 months to the NetSpend card. This will avoid the inactivity fee. Let the $2 deposits build up. It’s not a big deal to leave some money on the card. Don’t bother transferring it to the savings account or pulling it back to your checking account.
That’s it. After a one-time setup, everything runs on autopilot. Your $1,000 stays in the savings account earning 5%. Don’t touch it.
Interest on your $1,000 is paid quarterly (~$12). You can just leave it in the savings account. Amount above $1,000 still earns 0.5%. Having your $12 earn only 0.5% instead of 1% elsewhere isn’t a big deal. If you’d like, you can move the excess to the card once a year and pull it out by ACH. I wouldn’t do it more frequently than once a year.
Rinse and Repeat
Repeat all the steps above and get up to 3 accounts per person. Use separate logins for additional accounts but the email address can be the same. Remember to go slowly: completely finish all steps for one account before starting another account. Soon you will have $3k earning 5%.
Double up for a couple and you will have $6k earning 5% between the two of you. Having $6k earn 5% is like having $30k earn 1% in a high yield savings account!
If you still want more, you can get two more Brinks Prepaid MasterCards, which work similarly. Then you will have $10k earning 5% between the two of you. See Brinks Prepaid MasterCard + 5% Savings Account.
To some people, $1k, $3k, $6k, or $10k, is just a rounding error. They don’t see it as worth their time to earn a higher rate. That’s not the case for me. I see totally hands-off after a one-time setup as a good use of my time to earn 5% quarter after quarter, year after year.
When your money is earning 5% in a FDIC insured savings account, there really isn’t a good reason to withdraw. Keep it there for as long as 5% is so much better than anything else. Treat it as a long-term investment in bonds.
If NetSpend changes the terms of the program, or if other online savings accounts start paying 5% (good luck waiting for that), you can take your money out very easily.
Using the same link Move Money -> Savings, you can transfer money out from the savings account to the prepaid card.
Even though it says within 30 minutes, all my transfers were instant. Once the money gets onto the prepaid card, you can use the same ACH link from your bank to initiate a pull.
If you want to make sure you know how a withdrawal works, do a dry run. Keep in mind that Federal Reserve Regulation D limits withdrawals from any savings account to no more than six times a month. Transferring from the savings account to the card counts as a withdrawal from the savings account.
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice: Find Advice-Only.