Green Dot touts bank industry’s highest-yielding savings account

• Online bank Green Dot Bank is launching a bank account with a 3% annual interest rate on savings, the highest offered by any U.S. bank, according to Bankrate.com.
• However, one expert notes that the savings account comes with a debit card that comes with a $7.95 monthly fee and strict rules that, for some users, would wipe out the savings rate gains.
• There is also a $10,000 savings limit on the account offering 3% annual interest, which is not imposed by competitors offering 2.5% annual interest.

Green Dot is promoting a new bank account it says will help Americans do something most of us are bad at: save more money.

The branchless online bank on Tuesday launched a bank account that offers 3% annual interest on savings and 3% cash back on debit card purchases. the 3% savings account rate it’s the highest offered by any bank in the U.S., which offers a dismal 0.1% average rate on savings, according to Bankrate.com.

That said, “there are rewards checking accounts that can pay similar or higher performance with a limited balance, like the GreenDot account does, but require you to meet certain requirements each month, such as 10 debit card transactions, get statements in line and make an online payment,” emailed Greg McBride, chief financial analyst at Bankrate.

The supply also exceeds the Fed Funds rate at which banks lend to each other and is likely to fall after a long-awaited rate cut by the Federal Reserve on Wednesday. The Fed is widely expected to cut rates for the first time since 2008, with most looking for a 0.25 percentage point cut in the central bank’s short-term rate.

In its announcement, the company cited Fed statistics showing that one in four Americans doesn’t have enough cash set aside to cover a $400 unexpected expense.

“Everyone knows it’s smart and responsible to save money for the future, but we also know that for most people, saving money is hard to do,” said Steve Streit, founder and CEO of Green Dot Corp. and Green Dot. bank

Because customers redeem their 3% cash back each year on their account anniversary, the debit card is similar to “a forced savings account that uses the bank’s money to build a potentially large balance” , as it is used for everyday shopping, Green Dot said. at its launch.

The negative part

Still, the offer isn’t all it might seem at first glance, according to Ken Tumin, founder and publisher of DepositAccounts, a LendingTree subsidiary.

The 3% annual percentage return, or APY, only applies to balances up to $10,000, and there are several online savings accounts that pay around 2.5% APY without these limits on payments. ‘higher interest,’ Tumin sent by email. “The Green Dot savings account will only earn you about $50 more per year than another savings account that pays 2.5% APY,” he wrote.

“The 3% APY is great, but it’s only up to a $10,000 balance, so the appeal is for those trying to build up more savings than those who already have,” offered Bankrate’s McBride.

The offer also requires customers to have the Cash Back Bank Account which comes with a $7.95 monthly fee, which can be waived if the debit card was used to make at least $1,000 in purchases on previous month “If you don’t avoid that fee, the APY advantage would soon be eliminated,” Tumin said.

McBride noted another limitation: “The 3% cashback is only for online and in-app debit card transactions, not for swiping at the point-of-sale terminal.”

The Pasadena, Calif.-based bank initially offered prepaid debit cards in 1999 by targeting online shoppers. Green Bank entered banking when it bought Bonneville Bank of Utah for $15.7 million in 2011. It has since partnered with Walmart on the retailer’s prepaid debit card and with Uber on checking accounts for to ridesharing app drivers.