NOTE: Sept 2017 Update: The offer from NetSpend has now been rescinded. I’m keeping this Nov 2015 post in my archives since I actually took advantage of the offer and wanted to make folks aware that they are often opportunities like this available if you do some research.
In today’s low interest environment, is it really possible to earn a 5% annual interest rate on a safe savings account?? The answer, surprisingly, is YES. All it takes is a few steps of action on your part, and you’ll really have a savings account earning 5%.
I just did it.
Today, I’ll show YOU how to do the same.
How To Earn 5% – The Steps
It all started when I read THIS ARTICLE from Harry Sit on The Finance Buff blog. I followed his advice, step by step. Today, I’m earning 5% on $5,000 of my Emergency Fund. I’ll walk you through each of the steps from The Finance Blog article (full credit to Harry Sit, no need to change his detail except where I have something to add from my experience):
Be sure to follow the steps in order, and take the time necessary to allow the one step to process before moving on to the next.
1. Order A Card The best way to order your card is to use this refer-a-friend link (you’ll get an extra $20, and so will I!). If you’d rather skip on the $20 bonus, you can sign up directly on netspend.com and order a card. You give your name, address, and email. You set up a user id and password.
My experience: smooth, no complaints. I also set up “text alerts” so I get a free text whenever any transactions hit my new account.
2. Activate The 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.”
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.”
My Experience: To clarify, you need to log into your existing bank’s account (where you have the $ you’ll be moving to NetSpend). There should be a page in your bank’s site (after you sign in) that allows you to transfer money. The tab on my bank’s site was called “Transfers”, then I clicked “External” to set up the ACH transfer to NetSpend. You’ll also have to confirm a few “test” transfers (mine were $.13 and $.52) to confirm you have the right accounts linked. Note: while our checking account is a joint account (both my wife and I), I set up the NetSpend account in my name only since I was doing it online. I was a bit worried about it given Harry’s last sentence above, but it didn’t cause any problems.
4. ACH Deposit. Transfer $5,005 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 $5,000 from the card to the savings account. $5 stays on the card.
My Experience: My bank placed a hold on the $5,005 transfer, I simply had to call a provided 800 number to confirm the transfer. Also, my bank charged $3.00 for the ACH, so you definately want to move the entire $5,005 in one transaction. Also, it took about 5 days before the money was credited to my NetSpend account. After I got confirmation it was there, I did the “Move Money -> Savings” transaction in about 30 seconds.
Here’s the screen shot of my activity on the above steps, which shows the timing you should expect for the ACH setup, etc:
“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. Just activate it as usual. Having two cards active on one account is not a problem at all.”
My Experience: I did get the referenced email, about 15 minutes after transfering the $5,000 into the savings account, and ignored it. I did, however, investigate the fee differences between the “fee-per-use” plan and their proposed “Fee Advantage Plan” – here’s how they compare. I stayed with the “fee-per-use” plan, per Harry’s recommendation:
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.”
My Experience: Since my bank charges $3 per ACH transfer, I think I’ll just plan on transfering my earned interest back to my Debit Card from the NetSpend savings account (free transfer), then buy gas with the card every 3 months.
That’s it. After a one-time setup, everything runs on autopilot. Your $5,000 stays in the savings account earning 5%. Don’t touch it.
Interest on your $5,000 is paid quarterly (~$60). You can just leave it in the savings account. Amount above $5,000 still earns 0.5%. Having your $60 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.
While it takes a bit of work to get the account set up, I think it’s worth it given the lack of 5% options in today’s market. I set mine up primarily as a test for this blog, and to test the instructions provided by The Finance Buff. Having done it, I do agree with the recommendation and encourage you to consider it for yourself. The Finance Buff continues with a suggestion of potentially repeating the steps above and get up to 3 accounts per person. With a husband and wife both participating, you could move $30k into these 5% accounts. For me, I’m sticking with one card due to the $3 ACH fee. If the ACH’s were free from my bank, I would likely go through the steps to set up at least one more card, possibly two. Having said that, earning 5% for the minor inconvenience of setting up the card is a productive investment of my time.
I’m also considering this structure as a potential “retirement cash management model”, whereby I would maintain some “maintenance reserve” funds in the NetSpend account (e.g., roof repairs, furnace replacments, etc). It could serve as a convenient way to manage segregated accounts for various budget categories.
At this point, I’ll plan on leaving the money in the account for as long as NetSpend is paying the 5% rate. As Harry says, “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.” Whenever I decide to close the account, I’ll most likely just use the “Move Money” feature from Step 4 above, move it to the card, and spend it down via the debit card.
My last article, The Biggest Enemy Of Retirement, was about the negative impact of procrastination. Today is your test. I’m guessing with 99% confidence that no one reading this article is currently earning 5% interest on a safe, FDIC insured, savings account. If you are, then you get a pass. If you aren’t, then take action today. This simple move could earn you $250 more over the next year than if you keep $5,000 squirreled away in a “typical” savings account earning, essentially, nothing in today’s environment. Is $250 worth an hour of your time? I think so.
Do your own research, but this structure is one to consider.