A third of Chicagoans don’t have bank accounts, which makes it difficult to save money. Unless it’s in your mattress. But a new type of card might help.
Stored value cards are all the rage. They take the form of gift cards, a Starbucks card, or even a prepaid phone card. But what if you could use a stored value card to regulate your spending and help you save money? You might find the bucks will really add up.
Shawntale Hurst had had enough of credit card debt.
“The interest rate was exorbitant. It was just too much,” says Shawntale Hurst, Netspend customer.
So she decided to take action.
“I cut up all my credit cards and paid all my debt down, which was probably $8,000 to $9,000,” Hurst says.
And decided to pay with cash only for a year.
“But then it was getting kind of hard because for some things, you need a credit card. One of my coworkers, she told me about the Netspend card,” Hurst says.
The Netspend card, like the Rush card, is a stored value card. It looks like a credit card, complete with the Mastercard logo, but acts like a debit card. But instead of being tied to a checking account, you have to load up the card with cash before you use it.
“Anywhere from 5 to 10 people per day will come in to load money or sign up for new cards,” says Philip Gagerman, currency exchange owner.
“If I want to spend $500, I’ll put $500, ’cause there is a $2 service charge, I’ll put $502 down and whatever expense that I need, I’ll use it then,” Hurst says.
It costs another $2 every time you use the card, including withdrawing cash from an ATM machine.
“Or, you could pay $60 annually in which case they don’t take the $2 out per purchase,” Hurst says.
Netspend offers its customers the ability to receive wireless information updates about their accounts.
“We beam customers balances to their cell phones. So when they go to make a purchase, they’re going to be more apt to have a successful transaction knowing exactly how much money they have on their card,” says John Mitchell, Netspend.
But what if you don’t want to buy things? What if you want to save money? “I’m trying to retire in 10 years,” Hurst says.
To help its customers save, this month Netspend launched a brand new savings account program that is tied to its all-access card.
“Transfers are free and there are no minimum balance or deposit requirements either, unlike many of the other larger financial institutions,” Mitchell says.
More importantly, your Netspend savings account earns interest. That makes this stored value card act more like a bank account. But the biggest problem with stored value cards is that customers don’t get the credit-building benefits of banking and checking accounts. In response, Netspend says it will launch a credibility program later this year.
“It will allow customers, through the usage of this card to start building up their credit. We will report the transactions to various credit bureaus,” Mitchell says.
And while the company claims the card is accepted anywhere a Mastercard is accepted, it doesn’t always work like a credit card.
“The only problem that I had was I tried to rent a car at the airport, at Midway. They didn’t take it here at the city. But in Denver, they took the card for a rental car,” Hurst says.
Netspend expects to have more than 2 million cards in circulation by the first quarter of 2006. Overall, the fees generated by stored value cards are expected to reach nearly $6 billion by 2009. That’s a lot of cash. If you’re wondering how to make the most of your money, you’ll want to take advantage of some of the 200 free classes being offered this week.
Go to www.chicagofed.org
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