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Pay-as-you-go savings a bad deal

By Claes Bell · Bankrate.com
Wednesday, December 21, 2011
Posted: 5 pm ET

Prepaid debit card provider RushCard is announcing a new type of savings account called RushGoals to help customers save toward goals such as, "vacations, education, gifts, weddings," according to Rushcards.com, promising rewards for successful savers. From the site:

Each month that you have $500 or more in your FDIC protected goal accounts, we will reward you by refunding up to $2 in fees to your card.

RushCards founder Russell Simmons has contributed to the production of a lot of great music and is a major philanthropist and activist for some very worthy causes. But the the idea of a savings account that, in lieu of paying interest, actually just works to discount some of the above-market fees your company charges for basic financial services, is remarkable.

I've been critical of prepaid cards in the past for charging above-market fees to people who can least afford it, and the RushCard, despite its famous backer and consumer-friendly branding, is no exception.

Let's start with the RushGoals offer. With a maximum payoff of $24 in fee refunds, that amounts to an APR of about 0.5 percent, assuming you have exactly $500 in your account and rack up $24 a year in fees with RushCard (pretty much a foregone conclusion when you look at RushCard's pricing).

Put aside for the moment that the payoff is an in-kind benefit, not cash, so absent RushCard fees, the APR is 0 percent, and that you get nothing if the balance dips below $500 a month, and nothing extra for having more than $500. A savings account APR of 0.5 percent isn't terrible, especially when you consider the industry average is 0.14 percent for a money market account.

But what's galling is that $2 a month credit does so little to ameliorate the expense of using RushCard. Even if you opt for the cheaper "monthly plan" and arrange for direct deposit, you're going to be paying a $10 monthly fee to use the card, plus miscellaneous charges for everything from making PIN debit transactions to using bill pay (which you're more likely to need because RushCard doesn't offer checking) to depositing cash, which must be done via a third party such as Green Dot's Moneypak ($4.95 a pop).

And that's not taking into account ATM fees, because while RushCard won't directly charge you for two withdrawals a month under the monthly plan, RushCard doesn't have its own ATMs, so you'll be stuck paying whatever third-party ATMs charge to take cash out.

Here's a per-month estimate of the fees a RushCard user will encounter in a month, assuming they have direct deposit set up:

  • $10 monthly maintenance fee.
  • $2 for two bill pays at $1 each.
  • $6 for two ATM withdrawals (charged by ATM providers).
  • Total: $18 per month or $216 per year.

So even after the RushGoals  "reward," the $192 in fees leftover is far more than you would pay to get a full-featured checking account at many credit unions, online banks or local banks.

I could go through and rebut the arguments RushCard makes on their site about how many of their customers can't get a normal checking account, banks don't want their business, RushCard doesn't have overdraft fees, etc., but I've already been through them in past blogs. Suffice to say, I believe the math works out in favor of my argument.

The bottom line is, the RushCard is not a very good deal for most people, and RushGoals, a parody of a real savings account, only adds insult to that injury.

Yes, as RushCard feels the need to point out, there are plenty of even worse alternatives RushCard's intended customers could be using. But you would think the bar would be a bit higher than that for a socially conscious mogul such as Simmons who claims to be concerned about the plight of the working poor.

What do you think? Are RushCard and RushGoals a good deal for consumers?

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10 Comments
Dee
January 07, 2012 at 7:45 am

Very interesting, but I must say that i find it quite odd that you are bashing this RusHCard company when local banks and national banks (and not all credit unions are much better) are ripping the people off just as much. For example your "money market account" statement, where the average bank only gives you .14% interest on your balance. Just sad when a bank will flip your money possibly ten-fold and give you one-tenth of a percent in interest, and that is not even simple interest, it's APR interest. Just very sad. Guess this RushCard Company is taking "someones" profit, and they had to release an article bashing the company. Let us all try to evaluate these things with a third eye. Peace and Blessings