As I was reading through a few online forums, I stumbled across a thread discussing high-yield savings accounts. There were several users claiming to have found a true 5% savings account with FDIC insurance.
Vanessa and I already have several banking accounts at Discover Bank, but those accounts do not pay 5% APY interest, so I decided to go ahead and open a new account.
After more than a year of use, I can confirm that the 5% interest rate is very much real, and everything works as expected. This article will highlight my experience, and provide guidance for readers who might be interested in earning 5% interest from an FDIC insured bank account.
Multiple Names, Same Result
There are actually several different 5% accounts available. They all work the exact same way, and all pay 5% interest on balances up to $1,000 (per person, per account). The interest rate is basically zero beyond the first $1,000, which means there is absolutely no reason to hold more than $1,000 in each of these accounts.
I have five accounts in my name, and Vanessa has five accounts in her name, for a total capacity of $10,000. You can’t beat earning 5% interest on $10,000, with absolutely no risk involved. Given our experience and those shared by the Cash Cow Community, I believe that five (possibly six) is the maximum number of accounts allowed, per person.
Three of the account options (Netspend, Western Union, and Ace Elite) are made available through Metabank, while the other two account options (Brinks and H-E-B) are made available through BofI Federal Bank. Both Metabank and BofI Federal are major financial institutions that are fully insured through the FDIC.
When you open one of these accounts, you receive a prepaid card in the mail, which includes access to the attached savings account. The prepaid card is how these banks make a profit, as they charge extremely high fees on most transactions. Luckily, you don’t need to use the prepaid card to access the 5% FDIC-insured savings account.
Opening Your Account(s)
To get started, you must first sign up to receive the prepaid card in the mail. Once you activate the prepaid card, you can then access the 5% savings account. There are no credit pulls of any kind to open these accounts.
As an added bonus, if you signup using any of our referral links in this article, and then fund your new account with $40 or more, we both receive an additional $20 bonus (except Ace Elite and H-E-B, which should be avoided until other accounts are opened).
When I created our accounts several years ago, I received $20 for each new account funding, which was a nice added bonus. Last I’ve heard, the $20 signup bonus can only be earned once per person, per 180 days, for all of these accounts. Brinks might count separately than Netspend, as they are issued by different banks, but I cannot create another account to test this.
To get started:
It doesn’t matter which account you open first, but you can only open one account at a time (they track applications by address, not name). After you activate the first account, you can continue opening additional accounts.
1b) Open a Brinks account
Brinks is offered by a separate bank, which means that it’s possible (or at least, used to be possible) to open a Brinks accounts at the same time as the other accounts listed above. Furthermore, in our experience, it’s definitely possible to have more than one active Brinks account. Vanessa has two Brinks accounts (but no H-E-B account), and each Brinks account earns 5% APY on $1,000.
Avoid opening an Ace Elite or H-E-B prepaid card until you have exhausted the other options, as neither company offers the free $20 referral bonus. Also, the Ace Elite card is issued by a cash advance company and the customer service will be atrocious should you ever need assistance with your account.
2) Create your online account and login credentials
When your application is completed successfully, go ahead and create an online account on the spot. Do nothing else until you receive the prepaid card in the mail.
3) Activate your prepaid card
When you receive the prepaid card in the mail, log into your account (or create an account if you forgot in step 3) and securely activate the card. You will be required to provide your name, address, and SSN at this time to verify your identity (don’t worry, no credit pull).
How to Earn 5% APY
After activating the prepaid card, you will be able to deposit funds into the account using the routing and account numbers shown under the “direct deposit” menu in your account.
Practically speaking, the prepaid account acts as a basic checking account that is attached to the 5% savings account. When you transfer funds into the prepaid account, you can then log into your online account and immediately transfer those funds from the prepaid account to the 5% savings account.
The best and easiest way to transfer funds into each prepaid account is through an external checking account. I’ve had no issues using Discover Bank to link each of the prepaid cards, pushing $1,000 from Discover to each account. All ACH transfers are free through Discover, which means you can deposit and withdraw funds at any time by initiating the transfer through Discover.
Any funds that you transfer into the account will first flow into the prepaid account. You then must manually transfer those funds to the savings account. There is no way to fund the 5% savings account directly. All funds must first flow through the prepaid card into the savings account.
Likewise, if you need to withdraw any of the funds in your savings account, you must transfer from the savings account to the prepaid account, and then initiate a withdrawal through your external bank account (the free Discover Checking Account works well). You can also pay bills directly from your online prepaid account, but I’m not sure if they’ve started charging fees for bill payments. Either way, make sure to transfer the funds from the savings account into the prepaid account before initiating an external transfer.
A Few Caveats
According to the official fee schedule, all of these prepaid accounts charge a $5.95 fee if there is no activity in the most recent 90-day rolling period. I personally know individuals who have never been charged this fee, despite showing zero activity on the prepaid account, but I wouldn’t risk it.
To ensure that you avoid this inactivity fee, make sure there is activity on the prepaid card every 90 days. The easiest option is to establish a recurring ACH transfer from another bank account. Again, a free Discover Checking Account works very well because you can schedule automatic, recurring deposits and withdrawals into each prepaid account.
Also worth noting, interest is accrued daily but credited quarterly for these accounts. You’ll receive the quarterly interest around January 1st, April 1st, July 1st, and October 1st of each year.