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Should PrePaid Come with a Savings Account?

Adam Rust's picture

Posted August 16, 2010

From a first glance, linking a savings account to a prepaid card seems like a "no-brainer." Ah, but with a brain comes the realization that everything on these cards has an incremental cost, and the best way to make them work is to lower their ultimate cost to the consumer.

Card issuers then have a choice - offer the account and append some kind of cost on to the consumer, or make a card that is simpler and cheaper, albeit without the savings account.

Most cards out there opt for some version of the first choice. H&R Block's Emerald Card has a savings sub-account and a stored value sub-account.  The savings account pays 5 percent interest, but users have to pay a fee to move their money back out of savings and on to the stored value side. They cannot spend from savings.  It is the same with many of the NetSpend cards.  In some instances, consumers can get 5 percent on savings, but they'll also pay fees on the account. Unless there is more than two thousand dollars on those accounts, the interest doesn't make up for the cost of the fees.

The debit card provides an opportunity for a savvy company to reach the un-banked. One of the chief advantages is that transactions on these cards generate interchange fees. Those fees are paid to the card issuer. In some instances, contracts held by the issuer with their prepaid partners (distributors, processors, marketers) dictate that the interchange fees will cover costs up and down the delivery platform.

The Green Dot CEO, Steve Streit, understands that savings accounts aren't that important to the un-banked. His cards don't have a special savings feature, because they would not be utilized. Over the course of a year, his consumers are able to save, on average, just $78.