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Most people don’t believe it, but even in today’s market, you can still earn 5% interest on money sitting in an FDIC insured savings account. It does require a little bit of legwork to set up, but once you’ve done it, the entire account is completely automated.
For most people, a 5% interest savings account is a perfect place to store your emergency fund – it’s where I store mine. And depending on how much you like to keep in it, you could potentially have your entire emergency fund earning 5% interest per year.
You’re probably pretty skeptical right now, and I admit, I was pretty skeptical too. But now that I’ve had these accounts for close to three years, I can confidently say that they work exactly as I hoped they would. I get 5% interest on my emergency fund, I never have to look at the accounts, and I’ve never paid any fees. If you take a little bit of time to set these accounts up now, you can have a great spot to store some or potentially all of your emergency savings.
In addition, with Insight no longer offering their 5% interest accounts (as of July 1, 2018), Netspend becomes the only way you can have a 5% interest account without a ton of hassle.
If you need further convincing, just take a look at the difference in interest you stand to gain every year by utilizing these 5% interest savings accounts. Here’s what it looks like if you had just $5,000 saved:
And here’s what it looks like with $10,000 saved:
Instead of losing purchasing power to inflation each year, a 5% interest savings account – like the ones I use – see gains every year. Guaranteed! Potentially forever! All for a little bit of upfront work.
And as a bonus, if you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! It’s a no-brainer, in my opinion.
What Are Netspend Accounts?
First, a little bit of background on what these accounts are. The 5% interest savings accounts are provided by a company called Netspend. They’ve been around for over a decade and deal in prepaid debit cards. As a product, prepaid debit cards are bad. They typically prey on low-income people who can’t get access to traditional banking.
Luckily for us, we can sort of fight back by signing up for a Netspend account and using it only as a savings account. Each Netspend card comes with access to an FDIC-insured savings account that pays 5% interest annually. The FDIC insured part is important – it means the money in your Netspend savings account is treated exactly the same as money in any other FDIC insured bank. And remember, we’ll never pay any fees to Netspend because we’ll never actually use the prepaid debit card for anything.
It’s easiest to think of a Netspend account as consisting of two parts:
- A prepaid debit card (we don’t want to use this!)
- A 5% interest, FDIC insured savings account (this is what we want!)
To get the money into the savings account, we need to first move the money from our normal bank into the prepaid debit card. From there, it flows into the 5% interest savings account. You can think of the process of getting your money from your bank into your 5% interest account as looking sort of like this:
The thing we need to remember is that the prepaid debit card is a tool. We need to have it in order to get the 5% interest savings account, but we’re not going to use it for anything other than as a temporary stop on the way to the 5% interest savings account.
What Are The Limitations?
Like I said, it does take a little bit of work to set these accounts up. In order to maximize our 5% interest, we’ll need to open up multiple accounts. That’s because a Netspend account only pays you 5% interest on the first $1,000 in each account. Anything above $1,000 will only earn 0.5% (which actually isn’t all that bad in today’s market).
The good thing is that each person is allowed to open up a maximum of five Netspend accounts. Put $1,000 into each Netspend account and you’ll have $5,000 earning you 5% guaranteed interest. If you have a spouse or partner, you can have them open up five accounts of their own as well, effectively allowing your household to put away $10,000 earning 5% interest.
Considering the fact that the average American household has less than $1,000 in emergency savings, I’d say most people would do pretty darn well if they could put away $5,000 or $10,000 earning 5% interest.
Step By Step Directions
In order to open up five Netspend accounts, we’re going to need to open up multiple prepaid debit cards. Each prepaid debit card is tied to a specific company, but they all have the same underlying platform with Netspend and each one works exactly the same. Here are the five prepaid debit cards you’ll need to open:
- Netspend Prepaid Debit Card
- Ace Elite Prepaid Debit Card
- Western Union Prepaid Debit
- H-E-B Prepaid Debit Card
- Brinks Prepaid Mastercard
Below, I’ve listed step by step directions on how to set up your 5% interest savings accounts with Netspend. It might look like a lot of steps, but it really isn’t as complicated as it looks. The process of opening up all of the accounts will take some time, but the actual work of setting up the accounts only takes a few minutes. Most of your time will be spent reading this post or waiting for the cards to arrive in the mail.
The most important thing is don’t rush it! Follow these steps carefully, enjoy the process, and avoid the urge to skip ahead or do multiple steps at once. This is a money hack, and if you skip ahead or try to do multiple steps at once, you’ll end up causing more headaches for yourself and making the process harder and take more time than it needs to.
Again, take it step-by-step, exactly as I’ve laid it out below, and you can’t go wrong.
1. Set Up An Online Checking Or Savings Account With A Normal, Online Bank.
You’ll first need to have an online checking or savings account that lets you transfer money to the prepaid debit card. I use Ally Bank. It’s a completely free online bank that offers a 1% interest savings account. The really good thing about Ally is that it lets you link as many external bank accounts as you want, which makes it a very valuable hub bank account to have. Some banks, such as Capital One 360, limit you to linking 3 external bank accounts. Since we need to be able to link at least 5 external bank accounts, Ally is my preferred choice.
*Note: my experience with Netspend is entirely through linking it and doing transfers through Ally. I can’t guarantee that everything works perfectly when done using any other bank. Ally is a totally free bank, so if you don’t have an account with them, it’s easy enough to just open up an account and use it just for your emergency fund purposes. If you opt to use another bank as your normal bank account, the steps should still be the same, but your mileage may vary. Just make sure that your bank has free ACH transfers in and out of the account.
**Additional note: I recently discovered that Capital One 360 won’t link with Netspend. As a result, you can’t use Capital One 360 as your transferring bank.
2. Sign Up For Your Netspend Account.
Next, you’ll need to sign up for a Netspend account. If you use my link here, you’ll get a $20 bonus to start off your account once you deposit $40 or more (note, I’ll also receive $20 as a referral bonus – it helps me run this site). Make sure that the code 1450481187 is in the Referral Code section of the sign-up form in order to qualify for the $20 bonus.
Once you sign up for a Netspend account, you can then refer other members of your household and snag yourself another $20 bonus. All you need to do is sign up for a Netspend account, collect your $20 referral bonus, then refer your spouse or partner to open up an account using your own personal referral code. They’ll get $20 and you’ll get another $20, for a nice $40 swing.
Altogether, you’ll snag $60 and get the benefit of keeping some or all of your emergency fund or cash savings in a super high-yield savings account.
Unfortunately, you can only get the $20 bonus on the first Netspend account that you open. The other accounts you open won’t be eligible for a bonus.
3. Wait For Your Prepaid Debit Card To Arrive In The Mail And Then Activate It.
After you’ve signed up with Netspend, wait for the prepaid debit card to arrive in the mail. It probably took about a week before my Netspend card arrived. The packet will have a bunch of stuff that every bank has to send. Think of things like the fee schedule, truth-in-lending act documents, etc. I pretty much just shred all of that stuff.
Also included in that packet will be your routing number and account number (just like with a regular bank). Make sure you keep this information somewhere because you’ll need it in order to link your bank account with your Netspend account.
Now, follow the directions to activate your card. You should default into the “pay-as-you-go plan.” Stay on this plan since it has no monthly fees. We don’t care about the usage fees because we’re never going to use the prepaid debit card. Make sure that you’ve also activated your online banking account as well.
Once you’ve activated the card, stick it in a safe or a drawer for safe keeping. You’ll never use that card again.
*IMPORTANT: Do not try to link your Netspend account to your bank before you’ve received the card and activated it. Your bank will likely deny the transaction, and then you’ll have way more of a hassle to deal with.
4. Link Your Bank Account With Your Netspend Account.
Now that your Netspend account is activated, we’ll need to link it to your regular bank account. For Ally bank account holders, go to Transfers in the top bar of your Ally bank account. Then click on Manage Other Accounts. Then click Add New Non-Ally Account. For account type, choose Checking.
Then enter an account nickname and the routing number/account number for your Netspend account. For the nickname, I typically name it by the brand of card I received (i.e. Netspend, Ace Elite, Western Union, etc). Your external bank account screen should look something like this once you’ve linked all of your accounts:
Once linked, your bank will probably send some test deposits for you to confirm. When the account is confirmed, you’ll be able to transfer money from your bank account onto your Netspend prepaid debit card.
*Note: While uncommon, a small number of people have had issues with linking their bank account to Netspend. I think this can sometimes happen when your bank tries to pull the trial test deposits back before they actually make it onto the card. This results in the transfer getting rejected for insufficient funds, and then your bank might block Netspend as a security measure. There are a few solutions around this, which include:
- Use another bank that lets you automate small monthly or bi-monthly transfers (Simple Bank is a good one that is free, allows you to automate transfers, and links without any issues); or
- Use a bank that doesn’t do test deposits, put some money onto your Netspend card, then link your bank with the primary bank you want to use (like Ally).
I’ve personally set up ten Netspend accounts and have never had any issues with linking Ally to Netspend, but some folks have, so it’s something to think about.
5. Transfer Money From Your Bank Account Onto Your Prepaid Debit Card.
Next, transfer money from your bank account onto your prepaid debit card. For the Netspend, Ace Elite, Western, Union, and H-E-B card, the savings account should become available once you transfer any amount of money onto the card (remember to transfer at least $40 on your first card in order to snag the referral bonus). For the Brinks card, you’ll need to transfer $500 in order to activate the savings account. Since we can get 5% interest on up to $1,000, I recommend putting the full $1,000 onto each card, if possible.
After you’ve transferred money to the card, you should now be able to gain access to your savings account. In your Netspend account, go to Move Money in the sidebar, then click on the option that says Savings Transfer. There should be an option to activate your savings account. Remember, the money in your savings account is FDIC insured, so your money is subject to the same protections as any other bank.
*Note: When you first move money onto your Netspend card, they might send you an additional Netspend “Premier” Card in the mail. Don’t activate that card. Just stick it in a drawer once you receive it and ignore it.
6. Transfer Money From Your Prepaid Debit Card Into Your 5% Interest Savings Account.
You’ve now got money in your Netspend account, but it’s still sitting on the prepaid debit card. Now that we’ve activated the Netspend savings account option, we just need to transfer the money from the prepaid debit card into the savings account.
Go to Move Money, then click Savings Transfer, and then transfer all of the money from your prepaid debit card into your savings account. Your savings account should now have a balance of $1,000. Your prepaid debit card should have a balance of $0.
7. Set Up An Automatic Transfer of $1 Every 2 Months Into Your Netspend Account In Order To Avoid Any Inactivity Fees.
Success! You’ve now got $1,000 in your FDIC insured savings account earning 5% guaranteed interest! Now you don’t need to feel so bad that your money isn’t working for you.
We’re not done yet, though! The only fee we need to worry about is an inactivity fee. Netspend charges an inactivity fee if there’s no activity in your account for 90 days. They don’t count withdrawals as an activity, so we’ll need to set up an automatic transfer of $1 onto the prepaid debit card at least every 90 days in order to avoid that fee.
To be on the safe side, I set up an automatic transfer of $1 every 2 months. To set this up in Ally, log into your Ally account and select Make a Transfer. Then schedule a transfer of $1 from your Ally account into your Netspend account. For frequency, set it to transfer the $1 every 2 months. By doing this, we’ll never have to worry about any inactivity fee because there will be a $1 deposit onto the debit card every 60 days or so.
One thing to remember is that, if you’re automating your $1 transfers from a savings account, you’re limited to 6 transfers per statement period by federal law. As a result, if you’re using a savings account to do your automatic transfers, you’ll need to stagger them out over different months so that you don’t hit 6 transfers in one month (i.e. do 5 transfers in 1 month and 4 transfers in another month).
The easier way is to do your automated $1 transfers from a checking account. You can set one up in Ally at the same time you set up your savings account. I set up an Ally checking account and have all of my $1` transfers scheduled for the same day every 2 months.
8. Repeat The Above Steps With Each New Account.
You’ll need to do the above steps four more times if you want to put the full $5,000 away with Netspend. If there are two people in your household, each of you can open up five total accounts, for a total of $10,000 ($5,000 for each of you) in your Netspend accounts.
Here are the remaining four cards you’ll need to open:
- Ace Elite Prepaid Debit Card
- Western Union Prepaid Debit Card
- H-E-B Prepaid Debit Card. The one thing to note about the H-E-B card is that it comes with a $2.95 activation fee. They deduct this right out of your account, so the account starts off in the negative once you sign up. The $2.95 activation fee is worth it because we’re going to get much more back in interest. (Update: folks have told me that there is no longer an activation fee for H-E-B cards, which is even better).
- Brinks Prepaid Mastercard. They require you to deposit at least $500 to active the 5% interest savings account. Not too much of an issue for most people, but just remember this.
Remember that while it might take a little bit of time for all your cards to arrive, the actual process of setting up each account only takes a few minutes or so. It won’t take you long to set all these up.
If you’re a two-person household, you can have your spouse follow the same steps at the same time as you do. Start with the first card and move on down the line.
*A quick note. Some people have been able to get themselves a second Brinks card, allowing them to have a total of 6 Netspend cards. I tried to do this, and successfully received the card, but my account was then locked after I tried to load it with a trial deposit from Ally. The customer service rep told me that you are only allowed to have 5 total Netspend accounts. I personally recommend not going for a 6th card, just because I’d prefer not to have any eyes on my account, but whether to do so is up to you.
To quickly recap the process of setting up your 5% interest savings accounts with Netspend:
- Set up an online bank account with a bank like Ally.
- Sign up for your Netspend account.
- Get your Netspend debit card in the mail and activate your account.
- Link your bank account with your Netspend account.
- Transfer money from your bank account onto your Netspend debit card.
- Transfer money from your Netspend debit card into your 5% interest savings account.
- Automate a $1 transfer to the debit card for every 2 months.
- Repeat the same steps with the remaining four cards.
- If you have a spouse, follow the same steps with your spouse.
If you follow these steps, each person in your household will have $5,000 earning 5% guaranteed interest per year. In the end, your household should be able to put away up to $10,000 earning 5% interest.
Once you’ve maxed out every 5% interest account available to you, it should look something like this:
A quick pro-tip. One easy way to keep track of your 5% interest accounts is to download each mobile app to your phone. That way, you can easily see your balance in one spot. I put them all into one folder that looks like this:
In What Order Should You Open These Accounts?
There are five total 5% interest accounts that we can open per person. Thus, you’ll have a total of 5 cards per person if you’ve opened up every possible card.
In terms of the order in which you should open these accounts, I recommend the following:
- First, sign up for a regular Netspend card, fund it, and snag a $20 bonus. If you use my sign up link here, you’ll get a $20 bonus once you deposit $40 or more (note, I’ll also receive $20 as a referral bonus). Make sure that the code 1450481187 is in the Referral Code section of the sign-up form in order to qualify for the $20 bonus. At this point, you can put away $1,000 earning 5% interest.
- Second, use your Netspend referral code and refer your spouse or partner to Netspend. If you do that, you’ll get another $20 referral bonus and your spouse will get a $20 signup bonus. Altogether, that’s a cool $60 for opening up two Netspend accounts ($40 for you and $20 for your spouse). You’ll now have a total of $2,000 earning 5% interest.
- Third, open up an Ace Elite prepaid debit card. You should now have $3,000 earning 5% interest.
- Fourth, open up the Western Union prepaid debit card. You now have $4,000 earning 5% interest.
- Fifth, open up the H-E-B prepaid debit card. The one thing to note about the H-E-B card is that it comes with a $2.95 activation fee. They deduct this right out of your account, so the account starts off in the negative once you sign up. The $2.95 activation fee is worth it, though, because we’re going to get much more back in interest. You should now have $5,000 earning 5% interest.
- Sixth, open up the Brinks prepaid Mastercard. There are reports that this card requires a real direct deposit to set up the savings account, but I found that when I transferred money from Ally, it activated the savings account with no problems. You’ll now have $6,000 earning 5% interest.
- Finally, repeat the Ace Elite, Western Union, H-E-B, and Brinks cards with your spouse. You now have $10,000 earning 5% interest.
If you don’t have a spouse, then just ignore the steps involving a spouse and do the steps that apply only to you.
Remember, take it slowly. Don’t open up the next card until you have the previous card fully set up. If you have every account set up and maxed out, it should look like this:
How To Withdraw Money From Your Netspend Account
If you want to withdraw money from your savings account, you need to do the following steps.
Any money in your savings account must flow through your prepaid debit card first. Remember how we saw the money flow into the Netspend savings account? It should flow the opposite way when you’re withdrawing money from the account. Think of it as looking like this:
The other key to remember is to do the withdrawals from your normal bank account. The only action that should happen in Netspend is transferring money from your savings account onto your prepaid debit card and vice-versa. Any money being pulled out the account should always be pulled from an external bank account.
An example will help to explain it:
Let’s say we want to take out the full $1,000 from one of our 5% interest savings accounts. First, I’d go into my Netspend account and transfer $1,000 from my Netspend savings account onto my Netspend prepaid debit card. Then, I go into my normal bank account (Ally bank in this case), and schedule Ally to withdraw $1,000 from my Netspend prepaid debit card. That’s it.
Just make sure if you’re withdrawing money that the money has been moved out of the savings account and onto the debit card. Your bank can’t pull money directly out of the 5% interest savings account. If you attempt to pull money without any money on the debit card, you’ll probably get hit with a fee for insufficient funds.
Just think of the debit card as a funnel. Any money that you want to pull from or put into the savings account must first flow through the prepaid debit card.
Other Things To Note About Your Netspend Account
A few other important things to note:
- Interest Is Paid Quarterly. That means you’ll see interest post around January 1st, April 1st, July 1st, and October 1st of each year. The account terms also state that if you close the account before the interest is earned, you lose the interest for that quarter. If you want to close the account, try not to do it before you’ve collected the interest for the quarter.
- There’s No Hard Credit Pull. Netspend doesn’t do anything with your credit. No soft pull. And nothing appears on your Chex reports.
- Do Not Use The Prepaid Debit Card For Anything! Put it away and never use it. The only thing I did once I received it was to activate my account.
- Use Your Regular Bank Account If You Want To Withdraw Any Money. Remember, the prepaid debit card account acts like a funnel. Any money going in or coming out must go onto the prepaid debit card first. Don’t do anything in the Netspend account other than to move money between the prepaid debit card and the 5% interest savings account. When you want to get money out of your Netspend accounts, you need to make sure the money is on the card, then initiate the withdrawal from your regular bank.
- You Can Only Earn 5% Interest On The First $1,000 In Each Netspend Account. Each individual Netspend account is limited to 5% interest on the first $1,000 in the account. Anything above $1,000 in each account earns just 0.5% interest. If you want, you could just keep the interest in there. It won’t destroy you to have a little extra in the accounts. What I like to do is each time the interest posts, I withdraw all of it and bring each account down to $1,000. If you wanted to make it easier for yourself, you could just withdraw all of the excess money once per year (that’s what my wife does). You could even just leave it in there since everything above $1,000 in each account earns 0.5% interest, which isn’t a terrible rate.
Why Doesn’t Everyone Use A Super High-Yield Savings Account?
One thing I’ve noticed is that a lot of people are interested in getting more interest on their savings but still won’t take the step of actually setting up these 5% interest accounts. Here are the most common reasons for why people don’t utilize these accounts and my counter-arguments:
Reason 1: This looks like a lot of work. This is probably the number 1 reason most people don’t use these accounts – they think it’ll be a lot of work to set up. The thing is, the real work is done in what you’re doing right now – reading and understanding these accounts. Once you’ve done that, the actual process of setting up each 5% interest account doesn’t take up much time.
For me, the actual time I invested in setting up each account was 10 minutes or less. I literally got all of my accounts set up faster than it would take me to watch a dumb YouTube video. It’ll take you longer to plan your next vacation than it will take you to set up these savings accounts.
Reason 2: I don’t want to juggle multiple bank accounts. Another common excuse. A lot of people tell me that they don’t like the idea of having so many bank accounts. Yes, it’s true that you’ll need to open up multiple accounts in order to maximize your 5% interest savings. However, since you should be using these accounts to hold your emergency fund, you’ll never actually have to mess with the accounts other than if you want to withdraw the interest or if an emergency actually comes up. Remember, if you’ve followed the steps outlined above, then everything is already automated. You can basically treat all of these 5% interest savings accounts as one big savings account.
I personally look at my accounts four times per year in order to withdraw any excess interest. Most people can probably just look at them once per year or even never if they want. Even the excess interest you earn will still earn 0.5% interest, which is still good enough for most people, especially if the rest of your emergency fund is earning 5% interest.
Reason 3: I’m scared about being charged fees. I never really understood this argument. The only fee anyone would ever actually have to worry about is the inactivity fee, which you’ll never be charged if you’ve set up an automatic bi-monthly transfer. Even if you were to somehow get charged a fee, you’d still come out ahead given the interest you can earn.
Reason 4: This sounds too good to be true. It’s not. I’ve already explained how I do it and it’s worked out great for me. There are tons of other people out there doing the same thing. Plus, I’ve literally listed the exact step-by-step directions you need to follow if you want to do the same thing.
Reason 5: This type of interest rate can’t last. Another common reason that I’m not sure how to react to. I guess my thought is, why wouldn’t you take advantage of something while it’s still there? In any event, there’s nothing to suggest that these 5% interest accounts will disappear one day. They’ve been around for half a decade now. They don’t take that much work to set up. And, once they’re set up, they take no work on your end.
Get Yourself A 5% Interest Savings Account With Netspend
And that right there is the definitive guide on how to earn 5% interest on your emergency fund with Netspend. It might look like a lot of work, but trust me, it’s not. The only real work is reading this post to understand how this process works. The good thing is that I’ve synthesized everything for you so that you don’t have to figure it out yourself like I did.
- The Perfect Emergency Fund Account. I think this is the perfect account to use for an emergency fund. A household could open up 10 total accounts (5 between each person) and fund each account with $1,000. That’s a total of $10,000 earning 5% guaranteed interest. It would take five times as much money saved away to earn the same amount of interest. And if you combine these with four to eight Insight cards, you can save even more into 5% interest savings accounts!
- It’ll Help You Avoid Using Your Emergency Fund In Non-Emergencies. The good thing about keeping your emergency fund here is that you’ll be less tempted to use it unless there’s a real emergency. It just adds another small layer between you and your emergency fund, yet it still remains liquid and readily accessible.
- Your Money is Still Liquid. If you’re worried about liquidity, keep a base emergency fund (maybe $500 or $1,000) in your normal bank account. That way, you don’t have to worry about waiting a few business days for your funds to arrive.
Yes, it takes a bit of time to set these accounts up. You do have to sign up for them and then wait for the cards to arrive. But the actual time you have to spend activating and setting up these accounts is pretty minimal. And once set up, you never really have to touch the accounts again. The extra interest makes it well worth the effort it takes you to set these up.
Set it up once and you’ll have an emergency fund that beats inflation every year, potentially forever! Plus, I always like telling people that most of my emergency fund earns 5% interest.
Ready to try it out? Sign up for a Netspend card here and get a $20 signup bonus.
*Quick Note About Backup Withholding Issue. For the Q1 interest in 2018, all of the Netspend accounts apparently defaulted everyone to Backup Withholding, which essentially meant that some of your interest got withheld for taxes. You don’t want this, but luckily, a reader explained how to fix this problem. To turn off Backup Withholding, you need to log into your Netspend accounts, click on “Move Money” in the sidebar, then click on “Savings Transfers,” and then click “Tax Preferences.” From there, you’ll check off a box that says “I Am Not Subject To Backup Withholding.”