NetSpend and Green Dot card, most often sold from a rack on a pharmacy or a Walmart store, attract millions of customers even though other accounts offer a better value proposition.
I believe that consumers can find better values in the bank account marketplace if they know where to look.
In this blog, I will compare the prices of the two largest prepaid debit cards with the Varo Money account, a demand deposit Android or iPhone-based bank account available online.
The NetSpend family can count more than four million active prepaid, payroll, and debit card accounts. They sell their prepaid accounts at a variety of national chains, including check cashers and national retail chains.
Green Dot, the Utah bank and program manager whose CEO invented the prepaid debit card, has almost as many active accounts. Recently, Green Dot has expanded to offer other “business as a service” product lines, including and “early access to pay service.” Green Dot also does a reasonably robust segment of business contracting with other financial companies with back-end services.
Should you use a NetSpend or a Green Dot card?
Both cards do a great job meeting the needs of a customer for whom a convenient account sign-up process is the paramount concern in their decision framework. If the employer of such a person says to get a bank account to receive a paycheck by direct deposit, then said worker can quickly drive to the nearest superstore to find one of these cards. The employee can return to the payroll office before the end of the business day with a routing and account number.
However, for the customer “Works Great, Costs Less” (“WGCL”) consumer, neither NetSpend or Green Dot is a great choice. In most cases, consumers will have to pay one or several fees every month. In the case of NetSpend, where the monthly fee may be as high as $9.95, the account holder has to bank without access to a free ATM service. It is not just that the costs are higher at a NetSpend or a Green Dot, but also that the cards do less. For example, neither comes with full FDIC insurance – instead, both offer a second-best version of federal deposit insurance, known as “pass-through” insurance, where the bank places the deposits in a co-mingled account.
When I write about the convenience-driven consumer versus the WGCL client, I may be comparing two distinctly different groups of people. The WGCL customer pays attention to the overall experience, possibly with an eye to a longer-term account relationship, whereas the convenience-driven person picks a card mainly because she found it on a j-hook.
Let’s start by comparing the account fees:
Note, to use the monthly plan, the account holder must direct deposit at least $500 from an employer or a government benefits program.
• Card purchase fee: $4.95, paid in store
• Monthly fee: $5.00.
• Purchase (PIN) $0. Purchase (Signature) $0
• ATM withdrawal: $2.50, plus the cost of the host bank, usually several more dollars. NetSpend account holders do not receive access to a surcharge-free ATM network.
• ATM balance inquiry: $0.50, plus host ATM fee.
• Mobile check load fee for an expedited deposit (less than five days): 2 percent or $5.00, whichever is greater.
• Replacement card: $3.95
• Cash reload: $3.95 at a NetSpend Reload Network location
• No overdraft fees*
Consumers without a direct deposit can sign up for NetSpend’s Monthly Plan. The Monthly Plan charges a standard monthly fee of $9.95. Just as the case with the Reduced Monthly Plan, NetSpend does not charge an account for PIN and signature transactions. Other fees remain equal to those for the Reduced Monthly Plan.
A consumer without a qualifying direct deposit pays $9.95 per month.
• Card purchase fee: $1.95
• Monthly fee; $0 with a direct deposit of at least $1,000 in the prior calendar month. ($7.95 otherwise)
• ATM withdrawal: $3.00 plus the fee charged by the host bank or credit union, usually several dollars.
• ATM balance inquiry: $0.50, plus any host ATM fee.
• Replacement card: $5.00 or $15.00 for expedited delivery within three days.
• Cash reload $5.95
• No overdraft fees.
• Card purchase fee: $0
• Monthly fee: $0
• ATM withdrawal: $0 inside the MoneyPass surcharge-free ATM network.
• ATM balance inquiry: $0 inside the MoneyPass surcharge-free ATM network.
• Cash reload: $5.95
• Varo does not charge overdraft fees. Customers who meet specific requirements may qualify for Varo’s No Fee Overdraft Service. In Varo’s No Fee Overdraft program, an account holder can have a negative balance of up to $50. The account cannot be used until the overage is satisfied.
While two of the three cards mentioned inside this entry have some aspect of an overdraft service, they are the strong exception to therule. Overdraft disappeared in the prepaid debit card market after the implementation of the CFPB’s prepaid debit card rule. NetSpend can offer overdraft on its ACE Flare account because the card is not registered as a general-purpose reloadable account, but instead as a demand deposit bank account.
The ACE Flare account manages an overdraft program to consumers who have a qualifying direct deposit. Each transaction resulting in an overage of more than ten dollars ($10.00) triggers a $20.00 fee. The company will forego a fee if an account holder can ring the account balance back to or above zero within twenty-four hours. The option only applies to ATM withdrawals, point-of-sale PIN, and signature transactions.
Account-holders with a recurring direct deposit may opt-in for overdraft service. NetSpend charges $15 for overdrafts, with the caveat that account holders an avoid the fee if they return their balance to positive before the end of the following day. NetSpend waives the fee for overages of less than $15.
In 2011, the Federal Reserve Branch of Kansas City conducted an in-depth analysis of overdraft inside the NetSpend card portfolio. NetSpend gave (graciously) the Fed access to a rich data set showing account activity inside three million accounts. The authors found that only a small subset of accounts met NetSpend’s criteria for using overdraft. Moreover, among the set of accounts that maintained overdraft functionality over a long time, only 31 percent had an overage of more than ten dollars. Of those overdrafters, one in twelve never experienced a single overdraft because they always satisfied the overage within the window of forgiveness. In all, only 4.0 percent of all accounts paid an overdraft fee. However, among those that did overdraft, the cost of the service added up. On average, ovedrafters made an average of 32.5 overdraft transactions. Among higher-frequency overdrafters (more than twice per month), account holders overdrafted an average of 6.9 times per month. In an intriguing finding, the authors noted that the accounts receiving the highest number of fees were not the ones that demonstrated the highest frequencies per month. That finding suggests that when people receive a flurry of overdraft fees, they opt out of the service (or close their account).
Learn more about overdraft on WiseWage’s special overdraft report page.
Additional reporting on NetSpend:
NetSpend to Cease Overdraft Services on its prepaid debit cards (March 2019)
FTC Settles with NetSpend over Blocked Accounts
CFPB Prepaid Rule Goes into Effect - No More Overdrafts for NetSpend (March 2019)
How Will NetSpend Respond to the New CFPB Prepaid Rule? November 2019
NetSpend's Ace Flare Account Has Overdraft Fees - Is this an Evasion? (September 2019)