The best savings accounts might not be where you think -- not at a bank or credit union but at institutions known for charging fees rather than making money for consumers.
For those seeking a savings account that pays high-interest rates, today's deals offering 5 and 6 percent come linked to prepaid cards -- debit cards that can be preloaded with funds.
"Interest rates are the display in the front window," said Richard Barrington, a senior financial analyst for MoneyRates.com, a consumer rate comparison website. "It can work to your advantage if you have time and energy to chase promotional rates. But make sure that whatever fees apply don't offset the interest rate."
Such a savings account can come with significant catches, like requirements that the customer use the prepaid card and have a paycheck deposited directly into the account. Also promotional rates never last long. So after a customer's money is stashed in the account, the rate could drop.
High promotional rates are nothing new; they are aimed at bringing in new customers who will spend money elsewhere within an institution. And if someone is not careful when using the prepaid card, associated fees could gobble up any interest accrued on the interest-bearing savings account.
The Mango prepaid card has the highest rates on a cash savings account with an average annual percentage yield of 6 percent, with $5,000 being the maximum amount that can be saved. The rate drops to a measly 0.1 percent for any savings beyond that. But for savers, this could represent 300 bucks in pure interest earnings over a year.
The catch? That interest rate is only available for customers who have a recurring direct deposit; for customers without a regular direct deposit linked to the account, the savings account has an annual percentage yield of 2 percent, for as much as $5,000 saved. That's still not bad considering that rates elsewhere for most savings accounts are less than 1 percent.
Other prepaid card companies, including NetSpend, Union Plus and Vision Prepaid, also offer savings accounts with average annual percentage yields of 5 percent or more but each program comes with its own set of rules and fees.
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Could someone treat a prepaid saving account like a 1-year savings bond with a 6 percent interest rate?
This is possible if the customer is very careful. Otherwise a person could be on the hook for plenty of fees. The typical Mango card holder can rack up around $301 in fees each year, according to NerdWallet.com, a website that compares cards.
But with a little bit of strategizing, a customer can trim down those costs to nearly nothing. To receive the 6 percent rate at Mango, one must enroll with a direct deposit that's made every month. A direct deposit of $500 or more eliminates the $5 monthly service fee or the $60 annual cost.
If a Mango customer can avoid using an ATM entirely -- and use the card only for electronic payments -- this will amounts to an average savings of $120 a year. There is no cost to use the card for purchases and it's free for a consumer to add money with a transfer from a bank or from PayPal. But loading the card with cash via a GreenDot MoneyPak, a money transfer method, costs $4.95.
Compare this to cash-based savings accounts, which are earning much less than 1 percent these days. Even the best rate for a two-year CD is about 1.25 percent. And for those who invest, Facebook's recent stock performance shows that returns can be underwhelming.
Other alternatives for returns in the 2 percent to 3 percent range include high-yield and rewards checking accounts. Those, however, often come with very specific requirements like making at least 10 debit card transactions a month.
"The people who use these [accounts] most successfully know they are going to clear those hurdles every month and they are using it as a savings account and making a direct deposit," said Greg McBride, a senior financial analyst at Bankrate.com. "Their goal is stay as close to the cap as they can. It's a way to boost returns without additional risk."
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