I’m excited to share the first outcome for the Finance Challenge. I now have a High-Yield Savings Account (or HYSA) funded with $1000 to be used as a bare-bones emergency fund. I decided to go with Netspend, a prepaid debit card issuer, for this account. Netspend has a prepaid debit card that also comes with a savings account that is FDIC insured. Currently the savings account offers 5% on $1000 and a lower rate of 0.49% on balances above $1000. In full-disclosure, I have had a Netspend account for nearly one year now. But it is now fully funded! This should net me around $50 this year, for basically no effort! So why did I decide to announce this as the first item of the Finance Challenge?
Anyone familiar with personal finance has probably heard of Dave Ramsey and his “baby steps” to financial freedom. Baby step #1 is to have an emergency fund with $1000 in it. While I do not always agree with Dave’s principles, I do agree with this one. The Netspend account maximum for the high yield just happened to correspond with Dave’s first step.
When you sign up for the Netspend prepaid debit card, you are actually signing up for two accounts. One account is linked to a debit card like a regular checking account, which does not earn any interest. The second account is the HYSA. Don’t worry, they are both created automatically. The user interface for the Netspend website is actually really easy to use and looks better than most brick and mortar banks. You can view and transfer money between accounts in the website menu after logging into your account.
Since this is mainly an emergency fund, my top priority was whether I would be able to access my cash quickly. I would most likely use an ACH transfer to my regular bank account if I can afford the 2-3 business days of processing the transfer, but if not it is nice to have a debit card to pull money out of an ATM, even if you have to eat a $2.50 fee, plus the ATM operator fee (usually around $3.00).
Speaking of fees, here are a few more things to note about this account.
- The pay-as-you go fee plan is the lowest cost fee plan and luckily, it is the default.
- This account has monthly fees and transaction fees. The fees can be avoided if you do not use the debit card that comes with it for ATM withdrawals and purchases. The full fee schedule is also easy to find on the NetSpend website.
- There is an inactivity fee. This can be avoided with some sort of transaction monthly. I am using an ACH electronic bank transfer with my brick and mortar bank to deposit and then withdraw $1 every month. This avoids the inactivity fee and is also free to do, unlike using the debit card as stated above.
- The interest is paid quarterly, not monthly. This lowers the yield to 4.91%. The 4.91% should be used for comparison with other savings accounts and even Certificates of Deposit (CDs). Clearly 4.91% is much higher than the average of 1% available from traditional competitors and online banks.
- To optimize the higher yield, the interest earned each quarter is probably best to be withdrawn as soon as available, because anything above the $1000 as it will earn at the lower rate. To earn a higher return, this interest should be withdrawn then immediately deposited in a traditional savings account or an investment account.
- The 5% interest rate has been going on for at least a year now. It is so much better than competitors that I fear it may be lowered in the future. I will be keeping an eye out for any changes in the interest rate.
- A traditional bank is necessary to have in addition to the Netspend account, in order to transfer funds into and out of the account fee-free. Paypal is also an option; however, I haven’t used Paypal with this account.
- Again, full-disclosure, there was a small issue when setting up a link between my Netspend account and my traditional bank; however, a call to customer service easily fixed my issue.
For more information, check out the Netspend website here. If you are sure that your situation could benefit with this prepaid debit card and HYSA, I’d like to offer up my referral. You will receive $20 when you activate your Netspend card and deposit $40 or more using this link here. I will also receive $20. Feel free to use whatever link you are comfortable with, my goal is to inform.
I found the account through a quick Google search for High Yield Savings. There are other HYSAs out there, in case you are reading this and it is no longer available.
Finally, make sure to thoroughly check the FDIC insurance and fee schedule before, just in case the information provided here is no longer relevant.
Until next time!